How  to 

Invest  Money 

Wisely 


HOW    TO     INVEST 
MONEY     WISELY 


BY 

JOHN     MOODY 

AUTHOR,    "  HOW  TO  ANALYZE    RAILROAD    REPORTS,"    "THE   ART  OF 

WALL   STREET   INVESTING,"     "  MOODY'S    ANALYSES   OF 

RAILROAD  INVESTMENTS."     EDITOR,  MOODY*S 

MAGAZINE,    ETC. 


SECOND    EDITION 


PUBLISHED  BY 

MOODY'S  INVESTMENT  SERVICE 

35    NASSAU    STREET,       -      NEW    YORK    CITY 
1914 


Copyright,    1912,    by 

JOHN    MOODY 
All     Rights    Reserved 


PREFACE 

In  the  following  chapters  the  proper  methods  for 
investing  money  in  standard  securities  are  outlined  and 
discussed.  An  attempt  has  been  made  to  treat  this  im- 
portant subject  in  a  practical  and  concrete  way,  and  thus 
enable  the  investor  to  feel  that  he  is  getting  something 
more  than  a  mere  statement  of  principles.  The  great 
weakness  with  most  books  on  investment  subjects  is  thai 
they  generalize  too  much,  without  presenting  practical 
suggestions  for  the  investor  to  adopt. 

The  whole  plan  of  this  little  book  is  based  on  the 
ideas  of  Diversified  Investing  which  the  writer  has  for 
many  years  been  making  a  careful  study  of  in  his  work 
as  an  analyst  and  adviser  for  bankers,  financial  institu- 
tions, and  individual  investors  both  at  home  and  abroad. 
These  principles  for  wisely  and  intelligently  investing 
money  under  diversified  plans  have  within  the  past  few 
years  been  adopted  by  numerous  institutions  and  several 
thousand  individual  investors  with  satisfaction  and  profit. 

It  will  of  course  be  recognized  that  within  the  lim- 
ited scope  of  a  small  volume  of  this  kind,  the  subject 
can  be  covered  only  in  outline.  But  it  is  hoped  that 

5 

322576 


those  who  read  this  book  with  care  will  desire  to  have 
the  subject  further  elucidated,  with  the  idea  of  applying 
the  method  of  investment  themselves.  For  all  such  as 
these,  our  large  statistical  and  analytical  organization  is 
operated,  further  details  regarding  which  will  be  fur- 
nished upon  request. 

JOHN  MOODY. 
35  Nassau  Street,  New  York. 


NOTE. — In  the  back  pages  of  this  book  will  be  found  a  de- 
tailed description  of  our  Investment  Service. 

6 


TABLE   OF   CONTENTS 

PART  ONE:   DIVERSIFYING  INVESTMENTS:  PAGES 

I.     Selection  of  Investments 11 

II.     Mistaken  Investment  Methods 17 

III.  Unsound  Theories   21 

IV.  Proper  Principles  for  Diversifying  Investments...  25 
V.     Applying  the  Principles 33 

VI.     Further  Application  of  Sound  Principles 43 

VII.     The   Factor  of   Maturity  in   Bonds 49 

PART  Two:   INVESTING  FOR  PROFIT: 

VIII.     Taking  Advantage  of  Potential  Possibilities 59 

IX.     Investment  Cycles  67 

X.     Distribution  and  Profit  Combined 75 

XI.     Plans  for  Investment  of  Moderate  Sums 81 

XII.     Plans  for  Investing  Larger  Sums 87 

PART  THREE  :    CLASSES  OF  INVESTMENTS  : 

XIII.  Some  Typical  Industrial  Bonds 99 

XIV.  Selected  Public  Utility  Bonds 109 

XV.     Railroad  Stocks  as  Investments 129 

XVI.     Guaranteed  Railroad  Stocks  as  Investments 139 

XVII.     Industrial  Preferred  Stocks  as  Investments 145 

XVIII.     Unlisted  Industrial  Preferred  Stocks 155 

XIX.     Public  Utility  Preferred  Stocks  as  Investments...  157 

XX.     Short  Term  Investments  163 

XXI.     Investing  in  Convertible  Bonds 167 

Alphabetical  Index  174 

7 


PART  ONE 
DIVERSIFYING    INVESTMENTS 


Selection  of  Investments 

THE  sound  principle  for  properly  distributing  invest- 
ment capital  has  been  a  puzzle  to  investors  for 
many  years.  This  is  not  only  true  of  the  person 
whose  investment  capital  is  small  and  limited  to  a  few 
thousand  dollars,  but  it  is  just  as  fully  the  case  with  the 
large  investor  whose  capital  runs  up  into  the  millions. 
As  a  general  thing  those  who  desire  to  have  their  prin- 
cipal thoroughly  safe  have  endeavored  to  confine  them- 
selves to  the  higher  grade  bond  issues  of  railroads  and 
municipalities,  and  in  some  cases  have  made  an  effort  at 
distribution  by  spreading  their  investments  over  wide  sec- 
tions of  the  country  and  among  a  considerable  number  of 
different  issues.  But  in  spite  of  this  effort  at  distribution, 
such  investors  usually  find  themselves  facing  losses  in 
principal  even  in  periods  of  prosperity  when  they  nat- 
urally would  expect  profits  on  this  principal.  In  fact,  the 
method  employed  by  such  investors  has  often  resulted  in 
permanently  impairing  their  capital  rather  than  adding  to 
it.  Many  cases  can  be  pointed  out  where  an  investment 
fund  of  $500,000  has  been  reduced  from  ten  to  twenty 
per  cent  in  the  short  period  of  ten  years  and  this  has  hap- 


]'2  I  low   to   Invest   Money    Wisely 


pened  when  no  undue  risks  have  been  taken  and  no 
ordinary  speculation  whatever  has  been  indulged  in.  Of 
course,  where  an  investor  attempts  to  add  to  his  income 
by  investing  a  part  of  his  principal  in  speculative  stocks 
or  bonds,  the  dangers  of  loss  under  certain  conditions 
seem  apparent  enough.  But  when  his  entire  effort  has 
been  directed  to  the  conservation  of  his  principal  and  he 
has  consistently  avoided  investment  in  any  stocks  or 
bonds  of  a  doubtful  or  speculative  nature,  it  seems  on 
the  surf$e  quite  surprising  that  such  losses  should  be 
incurred. 

But  when  we  turn  to  the  small  investor  whose  capital 
is  limited  in  amount,  and  whose  securities  are  usually  con- 
fined to  only  two  or  three  issues,  we  find  that  the  danger 
of  loss  in  principal  is  even  far  greater.  I  have  known  of 
many  instances  where  an  investor  with  a  capital  of  from 
two  to  five  thousand  dollars,  after  exerting  the  greatest 
possible  care  in  placing  his  money  safely  and  avoiding 
every  kind  of  a  speculative  proposition,  has  found  himself 
at  the  end  of  two  or  three  years  with  a  loss  of  from 
twenty  to  forty  per  cent  and  with  no  possibility  of  recov- 
ering this  loss  except  by  taking  unreasonable  risks. 

The  kind  of  advice  which  is  generally  regarded  as  the 
most  conservative  for  the  investor  who  does  not  wish  to 
risk  his  principal  is  the  following:  "Think  first  of  your 
capital  and  pay  no  attention  to  the  amount  of  interest 
return  until  the  intrinsic  value  back  of  the  investment  has 
been  thoroughly  demonstrated.  Confine  your  invest- 
ments to  first  mortgages  in  railroads  or  other  successful 
undertakings  which  have  back  of  them  a  heavy  earning 


Selection  of  Investments  13 

power  and  on  which  the  interest  has  been  earned  for  a 
long  series  of  years  at  least  three  or  four  times  over.  Or, 
select  municipal  bonds  which  are  backed  by  the  credit  of 
prosperous  American  cities  and  about  which  there  is  no 
doubt  whatever  of  a  permanent  maintenance  of  high 
credit." 

Xow  suppose  an  investor  with  a  capital  of  $20,000 
acted  on  the  foregoing  advice  in  the  year  1902  and  put 
half  of  his  principal  into  Lake  Shore  &  Michigan 
Southern  Railroad  3l/o%  bonds  and  the  other  half  into 
Xew  York  City  4%  bonds.  In  the  year  1902  he  would 
have  found  that  among  railroad  bonds  there  was  nothing 
which  stood  higher  than  Lake  Shore  3>^s.  These  bonds 
answered  the  test  of  security  to  the  fullest  extent.  They 
had  back  of  them  an  enormous  equity  in  railroad  property 
with  great  earning  power,  and  for  a  long  series  of  years 
the  earnings  had  been  sufficient  to  cover  the  interest  on 
the  bonds  at  least  half  a  dozen  times  over.  The  issue  was 
of  such  high  standing  that  it  became  a  savings  bank- 
investment  in  New  York  and  other  Eastern  states,  and  in 
every  sense  of  the  word  was  practically  as  secure  as  a 
government  bond. 

As  for  New  York  City  4%  bonds,  nothing  of  higher 
type  could  have  been  selected  in  the  municipal  field.  The 
credit  of  New  York  City  was  unsurpassed  and  the  general 
strength  of  its  obligations  seemed  quite  equal  in  security 
to  those  of  the  United  States  Government. 

But  where  would  this  investor  find  himself  today  had 
he  followed  this  advice  ten  years  ago?  In  the  case  of  the 
railroad  bonds,  he  would  find  that  his  principal  had  de- 


14  How  to  Invest  Money  Wisely 

preciated  more  than  twenty  per  cent.  In  the  year  1902 
the  Lake  Shore  3^s  sold  steadily  between  110  and  112. 
In  the  latter  part  of  1912  they  were  quoted  at  86  and 
during  this  entire  period  of  ten  years  they  had  been  quite 
steadily  declining  from  the  high  figures  at  the  beginning 
of  the  decade. 

The  record  of  the  New  York  City  bonds  is  somewhat 
similar.  In  this  case  the  investor  would  find  that  over 
ten  per  cent  of  his  principal  had  gone  forever.  These 
bonds  Sold  steadily  well  above  110  in  1902,  but  today  are 
quoted  considerably  below  par. 

In  both  of  these  cases  the  equity  or  strength  back  of 
the  principal  of  these  issues  has  been  fully  maintained 
during  the  past  ten  years.  The  earning  power  of  the  Lake 
Shore  &  Michigan  Southern  Railroad  has  greatly  in- 
creased since  1902  and  the  margin  of  safety  on  the  Zl/2% 
bonds  has  grown  almost  every  year.  The  standing  and 
credit  of  New  York  City  has  also  been  maintained  and 
the  assessed  valuation  of  property  is  enormously  greater 
today  than  ever  before. 

But  in  spite  of  these  facts  the  investor  who  had  put 
$20,000  into  these  securities  in  1902  would  find  himself 
today  with  his  capital  contracted  to  less  than  $17,500  with 
no  apparent  hope  of  being  able  to  get  this  loss  back 
within  his  lifetime.  While  it  is  true  that  a  part  of  the 
loss  on  a  bond  like  the  Lake  Shore  3^s  will  finally  be 
recovered  eighty  years  hence,  when  the  bonds  mature,  yet 
at  no  time  during  the  man's  life  would  he  be  able  to  turn 
this  investment  into  cash  without  accepting  a  very  large 
part  of  this  loss. 


Selection  of  Investments  15 

It  will  thus  be  seen  that  the  principle  outlined  for  the 
safe  investment  of  capital,  as  mentioned  above,  does  not 
work  out  in  practice.  In  fact,  any  sound  method  for  the 
safe  investment  of  funds  must  be  planned  on  entirely 
different  lines  from  that  which  is  ordinarily  stated. 


II 

Mistaken  Investment  Methods 

IT  has  often  been  said  that  it  is  far  easier  to  make 
money  than  to  save  it.  Thousands  of  investors, 
large  and  small,  will  attest  to  the  truth  of  this 
axiom.  For  show  me  an  investor,  who,  without  spe- 
cial and  expert  experience,  can  safely  and  intelligently 
invest  $50,000  or  $100,000,  and  keep  it  safely  and  intelli- 
gently, invested,  on  a  basis  to  yield  normal  rates  of  return, 
and  not  jeopardize  his  principal,  and  I  will  show  you  a 
hundred  who  are  in  constant  danger  of  losing  or  seriously 
risking  at  least  a  part  of  both  interest  and  principal.  And 
in  saying  this  I  do  not  refer  to  the  speculator,  nor  even 
to  the  "semi-investor"  who  seeks  "a  little  more  than  the 
average  return,"  but  exclusively  to  the  man,  woman  or 
institution  who  may  be  well  satisfied  with  genuine  safety 
of  principal,  combined  with  an  interest  yield  of  from  4% 
to  6%  on  the  invested  capital. 

As  I  intimated  in  the  first  chapter,  one  of  the  causes  of 
investment  loss  is  the  adherence  to  some  crude  principle 
in  investing  money,  which,  while  sound  enough  in  itself, 
does  not  go  far  enough  to  offset  the  many  pitfalls  which 
confront  the  average  person  who  wishes  to  set  his  money 
actively  at  work  in  good  securities.  The  most  conspicu- 

(17) 


18  How  to  Invest  Money  Wisely 

ous  of  those  investment  principles  which  I  would  desig- 
nate as  "crude"  is  that  one  which  is  based  on  the  theory 
that  only  "high  grade  or  first  mortgage  bonds,  legal  for 
savings  banks,"  and  a  few  high  grade  stocks  of  equal  se- 
curity, so  far  as  principal  is  concerned,  should  be  included 
in  a  sound  investment  scheme. 

To  show  the  unsoundness  of  this  bare  theory  if  taken 
by  itself  alone  (and  it  is  so  taken  in  thousands  of  cases), 
I  present  on  page  19  a  concrete  example  of  the  ordinary 
method  of  "conservative"  investment,  as  applied  to  a 
capital  sum  of  about  $100,000.  The  assumed  date  of  this 
investment  is  1902,  ten  years  ago.  I  show  the  cost  of 
the  bonds  selected  at  that  time,  the  yield  on  the  cost,  the 
low  value  in  1907,  the  high  value  in  1909,  and  the  value 
in  the  month  of  May,  1912. 

The  investment  scheme  here  presented  is  confined  entirely 
to  "high  grade"  railroad  issues,  most  of  them  savings 
banks  investments,  and  all  recommended  in  the  strongest 
terms  as  "seasoned"  issues.  As  far  as  security  of  prin- 
cipal is  concerned,  nothing  could  be  better ;  there  are 
enormous  assets  back  of  every  one  of  the  issues,  and  at 
the  end  of  the  decade,  these  assets  were  in  every  case 
much  greater  than  at  the  beginning.  And  further  than 
this,  the  sum  is  distributed  in  very  small  lots,  showing  an 
attempt  at  diversification.  And  yet,  as  the  example 
shows,  the  outcome  has  been  most  unsatisfactory  to  the 
investor.  Not  only  has  the  yield  been  low  from  the 
start  (disregarding  amortization,  which  would  make  it 
very  much  lower),  but  the  holder  has  actually  suffered 
n  heavy  loss  in  present  capital  value.  At  the  low  prices 


Mistaken  Investment  Methods 


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20  How  to  Invest  Money  Wisely 

of  1907  (the  panic  year)  his  principal  showed  a  deprecia- 
tion of  $16,600  or  18% ;  at  the  high  prices  of  1909  (the 
best  seen  since  the  panic)  he  still  had  a  loss  of  $5,450  or 
over  5l/2%  ;  while  at  present  prices  he  has  a  loss  of 
$11,350,  or  Iiy2%. 

The  truth  is  that  the  theory  on  which  this  man  invested 
his  money  is  not  only  inadequate  for  modern  times,  but 
unscientific  and  unsound.  He  supposed  that  in  spreading 
his  principal  among  many  companies,  in  small  lots,  and 
diversifying  it  to  all  parts  of  the  country,  he  was  spread- 
ing his  risk  and  keeping  his  eggs  out  of  one  basket.  But 
as  a  matter  of  fact,  all  his  eggs  were  in  one  basket  and 
that  basket  was  tied  to  one  string,  and  is  still  so  tied. 
He  might  just  as  well  have  put  all  his  capital  into  one 
bond  issue  of  the  high  grade  seasoned  class ;  the  result 
would  have  been  essentially  the  same. 

In  future  chapters  I  shall  attempt  to  point  out  some  of 
the  real  principles  which  should  be  adopted  in  a  safe  and 
sane  investment  program. 


Ill 

Unsound    Theories 

AS  pointed  out  on  the  previous  pages,  the  theory  of 
investment  followed  in  the  example  shown  is  not 
only  inadequate  for  modern  times,  but  unscien- 
tific and  unsound.  With  the  rapid  and  unusual  changes 
in  business  enterprise  and  industry  during  the  past 
quarter  century  the  field  for  investment  has  not  only 
broadened  vastly,  but  has  become  immeasurably  compli- 
cated. Where,  in  1885,  there  were  but  few  fields  in  which 
the  careful  investor  could  safely  place  his  funds,  with 
only  half  a  dozen  types  of  high  class  security  issues,  to- 
day there  are  many  dozens  of  such.  In  those  earlier  days, 
money  could  be  invested  with  safety,  and  on  a  satisfac- 
tory basis  of  yield  (outside  of  real  estate  mortgages), 
only  in  Government  issues  of  the  United  States,  carefully 
selected  bonds  of  States,  Cities  and  Towns,  and  still  more 
carefully  selected  issues  of  steam  railroads.  But  nowa- 
days, not  only  has  the  field  for  government,  municipal  and 
railroad  issues  vastly  broadened,  but  entirely  new  fields 
for  safe  and  profitable  investment  have  come  into  exist- 
ence. The  change  of  manufacturing  enterprise  into  cor- 
porate forms,  and  the  consolidation  into  vast  units  of 
industrial  undertakings  of  every  type  has  enlarged  th2 

(21) 


--  How  to  Invest  Money  Wisely 

investment  field  within  recent  years  to  the  extent  of  prob- 
ably ten  billions  of  dollars  in  this  one  direction  alone. 
The  development  of  electrical  power  and  light,  with  the 
growth  and  expansion  of  the  great  public  utility  under- 
takings of  the  country,  has  also  broadened  the  field  enor- 
mously in  which  capital  can  safely  be  set  to  work  without 
danger  to  either  principal  or  yield.  The  growth  and  ex- 
pansion in  the  use  of  the  telephone;  the  opening  up  of 
natural  resources;  the  increases  in  the  possibilities  of 
water  power  and  water  supply ;  the  growth  in  commercial 
use  of  gas  and  oil ;  the  increases  in  population  which  have 
steadily  raised  the  values  of  utilities  in  our  cities; — all 
have  opened  new  avenues  for  the  safe  investment  of  cap- 
ital which  were  not  dreamed  of  a  generation  ago.  And 
within  the  past  ten  years,  the  trend  toward  consolidation 
of  retail  businesses  in  many  lines,  including  the  remarka- 
ble growth  of  the  mail  order  business,  has  brought  into 
existence  a  new  class  of  security  issues  of  safety  and 
promise.  Furthermore,  the  steady  increase  of  wealth 
throughout  the  American  continent  has  constantly  con- 
tributed to  enlarged  size  and  stability  for  institutions  en- 
gaged in  the  business  of  banking  and  insurance,  and  many 
stocks  of  National  and  State  banks,  trust  companies,  safe 
deposit  and  insurance  organizations  have,  within  recent 
years,  come  to  be  classed  among  strong  and  desirable 
investment  issues. 

It  is  probably  largely  because  of  the  very  multiplicity 
of  these  investment  possibilities  that  the  problem  of  safe 
selection  of  investments  has  become  so  difficult  in  modern 
times.  No  one  but  he  who  has  made  a  careful  study, 


Unsound  Theories  23 

not  merely  of  particular  investments,  but  also  of  general 
business  conditions,  can  be  regarded  as  qualified  to  select 
the  best  issues  with  entire  assurance  of  safety.  For  the 
pitfalls  are  many  and  dangerous;  and  while,  among  all 
the  classes  of  enterprise  referred  to  above,  money  can 
be  discriminatingly  placed,  the  fact  remains  that  danger 
stalks  in  every  direction  for  the  person  who  has  not  the 
facts  at  hand  or  who  does  not  possess  the  experience  to 
pick  the  wheat  from  the  chaff.  Thus,  while  one  can  safely 
select  bond  issues  secured  on  trolley  lines  which  are,  for 
all  practical  purposes,  "as  good  as  gold,"  he  can  also  lose 
his  money  by  buying  worthless  trolley  bonds  or  stocks. 
He  can  select  "seasoned"  railroad  issues,  and  he  can  lose 
his  money  with  great  ease  in  this  same  field.  He  can  buy 
industrial  investments  which  will  pay  him  handsomely; 
but  he  also  has  full  opportunity  to  lose  his  all  in  this  same 
type  of  security.  If  he  goes  in  for  bank  or  trust  company 
stocks,  he  may  fare  well  or  he  may  do  worse  than  any- 
where else ;  and  he  can  also  find  plenty  of  weak  or  bad 
municipal  bonds  as  well  as  good  ones. 

Because  of  the  existence  of  so  many  pitfalls,  many  in- 
vestors adhere  to  the  theory  that  it  is  still  the  wisest  plan 
to  stick  exclusively  to  the  few  old  line  investments,  such 
as  municipals,  governments,  and  the  underlying  bonds  of 
railroads,  and  not  attempt  to  go  into  the  new  and  less 
mature  investment  fields.  But  against  this  theory  stands 
the  undeniable  fact  that  the  investor  must  attempt  to 
conserve  his  full  principal  and  at  the  same  time  get  at 
least  a  fair  return  on  his  capital.  Unless  he  be  a  very 
rich  man,  he  cannot  afford  to  allow  all  his  capital  to  be 


24  How  to  Invest  Money  Wisely 

concentrated  in  government  issues,  yielding  2  to  3  per 
cent,  nor  in  high  grade  municipal  bonds,  which  will 
return  him  but  little  more.  If  he  selects  a  large  propor- 
tion of  underlying  railroad  bonds  in  order  to  bring  his 
income  up  to  a  moderately  higher  plane,  he  cannot  hope 
to  secure  an  average  yield  of  over  3%  to  4l/o  per  cent  in 
any  event. 

But  there  is  a  still  stronger  reason  than  this  why  he 
cannot  afford  to  concentrate  his  capital  entirely  in  securi- 
ty issues  of  this  type.  Such  bonds,  whether  they  be  gov- 
ernments, municipals  or  railroads,  often  prove,  when  held 
over  long  periods  of  time,  very  unsatisfactory  invest- 
ments indeed.  As  I  pointed  out  in  the  first  chapter,  he 
who  bought  New  York  City  bonds  five  or  six  years  ago, 
finds  himself  in  a  very  unenviable  position  with  his  hold- 
ings today.  If  he  had  bought  English  consols,  French 
rentes,  or  the  bonds  of  any  strong  government  or  strong 
municipality  on  this  or  any  other  continent,  he  would 
have  fared  the  same.  If  he  had  selected  underlying  rail- 
road bonds,  with  enormous  equities  and  vast  earning  ca- 
pacities back  of  them,  he  would  have  done  no  better  Ten 
years  ago,  English  consols  would  have  cost  him  98;  to- 
day the  same  bonds  are  selling  at  74 ;  Illinois  Central  3s, 
in  1899,  sold  at  96;  now  they  are  quoted  at  75.  Xo 
matter  how  carefully  he  had  selected  issues  of  this  type  a 
few  years  ago,  he  would  today  be  facing  a  serious  de- 
preciation in  the  value  of  his  capital. 


IV 

Proper  Principles  for  Diversifying  Investments 

IX  recent  chapters  I  have  been  pointing  out  the  mis- 
taken ideas  regarding  proper  investment  distribu- 
tion, which  so  many  investors  have  followed  to  their 
sorrow    in   modern   times.      I   shall    now    submit    some 
constructive   suggestions   regarding  scientific   investment 
distribution  and  try  to  lay  down  some  fundamental  prin- 
ciples which  all  investors  should  recognize  when  placing 
their  capital  in  bond  and  stock  issues. 

There  is  a  distinct  divisional  line  running  across  the 
entire  field  of  corporate  investments.  This  line  of  de- 
markation  does  not  follow  any  superficial  division  such 
as  we  find  distinguishes  a  stock  issue  from  a  bond  obliga- 
tion. A  bond  per  se,  is  not  always  necessarily  any  better 
than  a  stock;  nor  is  it  sometimes  as  secure  as  a  stock. 
Many  stock  issues  are  far  superior  in  strength  and  value 
to  many  bond  issues,  and  the  mere  fact  that  the  bond  is  a 
mortgage,  and  that  the  holder  thereof  is  legally  entitle  ! 
to  a  fixed  return  on  the  mortgage,  will  not  of  itself  neces- 
sarily put  him  in  a  position  of  better  security  than  that 
occupied  by  one  who  holds  common  stock  in  a  corpora- 
tion or  railroad  which  is  not  a  mortgage  and  which  has 
no  prior  claim  on  income.  This  is  simply  another  way 

(25) 


l>tj  How  to   Invest   Money   Wisely 

of  saying  that,  after  all,  the  real  element  back  of  the 
average  security  is  the  earning  power  or  income  produc- 
ing capacity  of  the  property.  A  first  mortgage  on  a  rail- 
road which  is  earning  little  or  no  money  is  not  in  any 
sense  so  desirable  as  a  common  stock  on  a  railroad  or 
industrial  corporation  which  is  earning  and  paying  a  good 
dividend  on  that  stock. 

The  relative  position  of  different  securities  in  relation 
to  earning  power,  results  in  dividing  them  into  two  great 
classes.  These  two  classes  are  briefly  defined  as  follows: 

1.  Securities,  the  investment  values  of  which  are  be- 
\ond  or  above  the  influences  of  fluctuating  earning  power; 
and 

2.  Securities,  the  values  of  which  are  almost  exclu- 
sively affected  by  changes  in  earning  power. 

Among  the  former  are  such  issues  as  underlying  bonds 
of  railroad  systems  on  which,  over  a  long  period  of  years 
the  interest  has  been  earned  many  times  over,  and  back 
of  which  there  are  vast  equities  which  are  of  such  size 
that  no  possible  doubt  could  arise  regarding  the  practi- 
cally complete  security  of  the  issue.  Such  are  many  of 
the  bond  issues  secured  on  the  Pennsylvania,  the  Illinois 
Central,  the  Chicago  &  Northwestern,  the  Burlington,  the 
Lake  Shore,  etc.  Preferred  stock  issues  of  some  rail- 
roads are  also  to  be  regarded  as  in  this  class,  although 
this  does  not  generally  hold  true.  Guaranteed  stocks 
also  are  in  many  cases  in  the  same  general  class  as  high 
grade  seasoned  bon  's  and  the  higher  grade  preferred 
stocks.  Guaranteed  issues  like  Morris  &  Essex  stock, 
Xew  York.  Lacka  wanna  &  Western  stock,  and  Pitts- 


Proper  Principles  for  Diversifying  Investments  27 

burg,  Fort  Wayne  &  Chicago  stock,  are  all  issues  of  this 
type. 

The  primary  factor  affecting  the  prices  of  this  first 
class  of  securities  is  the  money  market.  The  price  of  a 
bond  like  the  Lake  Shore  first  3^s  or  the  Illinois  Cen- 
tral 3y2s  is  not  materially  (if  at  all)  affected  by  the 
changing  results  from  year  to  year  in  the  income  of  these 
properties.  The  price  of  Northern  Pacific  first  4s  is  not 
so  affected.  These  properties  might  double  their  earn- 
ings within  a  given  time  and  this  fact  would  have  no  ap- 
preciable effect  on  the  prices  of  these  bonds.  The  same 
thing  is  true  of  the  Union  Pacific  first  4s,  the  Pennsylva- 
nia Railroad  underlying  issues,  or  the  underlying  bonds 
or  strongly  guaranteed  issues  of  the  Delaware  &  Hudson, 
the  Reading  or  the  New  York  Central.  Consequently,  if 
the  investor  confines  his  selections  to  high  grade  issues 
of  this  type  he  need  give  little  concern  to  changes  and 
fluctuations  in  earning  power.  It  will  not  hurt  him  if 
earnings  on  his  particular  property  fall  off  quite  radically ; 
and  conversely,  it  will  not  help  him  if  earnings  rise  very 
rapidly.  Even  should  his  particular  property  come  upon 
evil  days  and  default  on  some  of  its  junior  obligations  his 
position  will  be  practically  the  same.  In  the  year  1908 
the  Erie  Railroad  failed  to  earn  the  interest  on  its  junior 
bond  issues  and  came  perilously  near  a  receivership,  but 
the  underlying  bonds  on  the  system,  such  as  the  old  Erie 
Railway  4s  and  5s,  secured  by  first  lien  on  the  main  line, 
were  not  affected  in  value  or  price  by  this  condition  of 
things.  In  fact,  they  were  selling  at  better  prices,  when 
the  company  was  so  near  bankruptcy,  than  they  were  two 


How  to  Invest   Money  Wisely 

years  before,  when  the  road  was  reporting  a  large  sur- 
plus and  paying  a  dividend  on  its  first  preferred  stock. 
The  reason  for  this  was  that,  no  matter  what  may  have 
happened  to  the  Erie  system,  the  equity  back  of  these 
particular  issues  was  so  heavy  that  troubles  could  never 
reach  them.  The  Erie  might  have  been  reorganized  in  a 
very  drastic  fashion,  and  yet  these  mortgages  could  not 
have  been  disturbed.  Consequently,  they  are  in  the  first 
class  mentioned  above,  and  depend  for  their  value,  not  on 
specific  factors  affecting  the  earnings  or  financial  condi- 
tion of  the  Erie  Railroad,  but  on  the  general  money  rate 
factor  almost  exclusively. 

To  take  a  more  extreme  case.  The  Wheeling  &  Lake 
Erie  Railroad  has  been  in  receivers'  hands  for  several 
years,  but  the  Lake  Erie  division  bonds  of  this  company 
sold  higher  in  1909  than  in  1908  and  have  never  declined 
in  response  to  the  fact  that  the  company  went  bankrupt. 

The  true  line  of  demarkation  between  "high  grade" 
issues,  so  called,  and  those  of  any  other  "grade"  is  the 
one  we  have  indicated.  The  phraseology  on  the  instru- 
ment has  its  place  and  meaning,  of  course;  but  no  legal 
lore  or  high  sounding  phrases  can  give  a  bond  value  if 
its  position  in  the  income  results  of  the  property  is  not 
secure.  If  a  given  railroad  is  earning  an  average  of 
$5,000  per  mile  net,  and  a  bond  issue  on  the  property  has 
the  first  claim  on  that  income,  the  immediate  question  will 
be,  how  much  of  that  $5,000  per  mile  is  required  to  meet 
the  interest  on  the  issue?  If  $4,000  per  mile  is  so  re- 
quired, then  the  bond  is  in  no  sense  "high  grade;"  for  a 
20  per  cent  decline  in  net  receipts  would  wipe  out  all  the 


Proper  Principles*  for  Diversifying  Investments  29 

margin  of  safety.  But  if  the  amount  required  for  interest 
is  $400  per  mile  or  less  and  the  net  earnings  are  $4,000 
per  mile,  then  the  bond  is  removed  entirely  beyond  the 
influence  of  changing  earnings,  and  even  a  50  per  cent 
fall  in  net  receipts  would  not  jeopardize  its  position  to 
any  great  extent.  In  fact,  the  road  would  have  to  go 
through  an  almost  unheard-of  period  of  bad  results  to 
affect  the  value  of  this  issue. 

But  sufficient  has  been  said  to  indicate  that  any  sound 
and  rational  distribution  of  investment  funds  must  cover 
a  broader  field  than  that  of  the  merely  "high  grade  is- 
sues," so  called.  In  brief,  it  should  include  not  merely 
issues  which  are  primarily  responsive  to  the  current  rates 
for  money  and  credit,  but  also  such  issues  as  are  more  di- 
rectly responsive  to  earning  power.  The  latter  type  of 
securities  can  easily  be  included  in  a  sound  selection  of 
investments  without  going  into  the  field  of  speculation. 
It  is  not  necessary  for  a  man  to  buy  speculative  bonds  or 
non-dividend-paying  and  doubtful  dividend-paying  stocks 
to  get  the  benefit  of  improving  earning  power  and  grow- 
ing equities  in  railroads  and  other  properties,  which  trans- 
pire over  reasonable  lengths  of  time.  But  it  is  necessary 
that  he  should  invest  to  some  extent  in  the  types  of  se- 
curities which  have  a  potential  interest  in  the  expansion 
of  the  property.  If  he  buys  an  ordinary  bond  he  has  a 
limited  interest  only;  if  the  bond  is  thoroughly  seasoned 
and  he  has  paid  the  prevailing  rate  for  it,  then  there  is 
no  chance  whatever  of  future  benefit  from  expansion  in 
values  of  the  property;  if  the  bond  is  low  grade  and 
not  yet  secure,  then  he  is  merely  speculating.  If,  how- 


30  How  to  Invest  Money  Wisely 

ever,  he  can  make  careful  selections  of  securities  which 
participate  in  some  way  in  increasing  earnings,  either  di- 
rectly or  indirectly,  then  as  the  business  and  profits  of 
the  company  grow,  the  value  of  his  investment  and  the 
income  on  it  will  also  grow.  If  he  purchases,  at  the 
proper  periods,  stocks  of  railroads  like  the  Illinois  Cen- 
tral or  the  Pennsylvania,  which  have  long  records  for 
steady  payment  of  dividends,  he  may  be  able  to  put  him- 
self in  a  stronger  position  to  meet  changing  conditions  in 
industry  and  in  the  money  market,  than  if  he  confines 
himself  to  bond  issues  alone.  It  is  just  as  reasonable 
that  intelligent  selections  of  high  grade  stocks  can  be 
made  as  high  grade  bonds.  It  would  not  have  been  wise 
for  an  investor  seeking  security  of  principal  and  per- 
manency of  income  to  have  bought  Missouri  Pacific  stock 
or  Toledo,  St.  Louis  &  Western  preferred  in  1908, 
merely  because  they  were  dividend  payers  and  looked 
''cheap,"  but  there  would  have  been  no  mistake  at  that 
time  in  buying  Louisville  &  Nashville,  Norfolk  &  West- 
ern or  Southern  Pacific  stocks.  While  such  stocks  as 
the  latter  fluctuate  to  considerable  extent  and  rise  too 
high  during  periods  of  speculation,  they  have  back 
of  them  enormous  equities  and  growing  earning  power, 
and  as  this  earning  power  improves  from  decade  to 
decade,  the  equities  and  income  of  such  stocks  improve 
in  logical  ratio. 

The  same  principle  applies  to  the  selection  of  bond  is- 
sues which  are  convertible  into  stocks.  For  example, 
should  the  Norfolk  &  Western  Railway  increase  its  net 
income  during  the  next  ten  years  in  even  half  as  great  a 


Proper  Principles  for  Diversifying  Investments  31 

ratio  as  it  has  during  the  past  ten  years,  the  common 
stock  of  the  road  will  probably  be  paying  a  much  higher 
dividend  than  it  now  pays  and  might  be  selling  where 
Louisville  &  Nashville  now  does.  In  such  a  case  the  con- 
vertible 4  per  cent  bonds  would  sell  in  the  same  neigh- 
borhood as  the  stock,  and  before  they  were  retired  or 
called  the  holder  could  at  any  time  convert  into  the  stock 
and  get  the  benefit  of  increased  income.  If,  .on  the  other 
hand,  the  system  should  fail  to  increase  its  earning  power, 
the  bond  would  maintain  its  original  value  as  a  fixed  4 
per  cent  investment. 

Of  course,  in  throwing  out  these  suggestions,  I  have 
not  forgotten  that  many  other  factors  enter  into  the  in- 
vestment problem  just  as  soon  as  we  go  outside  the  field 
of  the  issues  which  respond  to  the  money  market  exclu- 
sively. And  here  it  is  that  the  question  of  selection  comes 
in  in  the  strongest  way.  Every  convertible  bond  is  not 
to  be  classed  as  desirable  for  investment  purposes,  and 
very  few  common  stocks  are. 

One  of  the  vital  matters  to  be  borne  in  mind  is  that  of 
location  of  the  company  in  which  the  investor  places  his 
funds.  Thus,  even  in  confining  himself  to  railroad  is- 
sues alone,  the  investor  should  give  due  regard  to  the  geo- 
graphical location  of  the  different  roads.  Many  rail- 
road systems  are  primarily  dependent  upon  special  types 
of  industry  for  their  success.  Thus,  roads  like  the 
Norfolk  &  Western,  Chesapeake  &  Ohio,  Kanawha  & 
Michigan  and  Hocking  Valley  are  to  a  preponderant 
extent  dependent  upon  conditions  in  the  soft  coal  indus- 
try for  their  stability  and  profits ;  others,  such 


32  How  to  Invest  Money  Wisely 

as  St.  Paul,  Rock  Island,  Northern  Pacific  and  Burling- 
ton depend  to  large  extent  upon  agricultural  conditions 
in  the  West;  still  others,  like  New  Haven,  New  York 
Central,  Lackawanna,  Long  Island,  and  Philadelphia, 
Baltimore  &  Washington  rely  largely  upon  passenger 
business;  while  roads  operating  in  the  Southern  states 
depend  upon  industrial  conditions  in  that  section  for  their 
earnings  and  dividends. 

A  full  discussion,  however,  of  the  question  of  invest- 
ment distribution  takes  us  entirely  outside  of  the  railroad 
field.  This  is  touched  upon  in  the  following  pages. 


Applying  the   Principles 

BEARING  in  mind  the  two  primary  price  factors 
already  referred  to,  we  are  now  in  a  position  to 
discuss  a  more  specific  classification  of  invest- 
ments. For  while  all  bonds  and  stocks  respond  to  either 
the  general  price  of  money  or  credit,  whether  they  are 
governments,  municipals,  railroad  issues,  public  utility 
issues  or  other,  or  to  more  specific  influences  as  revealed 
by  earning  power,  yet  the  different  types  of  undertakings 
cannot  be  measured  by  the  same  method  of  analysis.  In 
other  words,  earning  power  of  certain  industrials  may  be 
affected  by  far  different  things  than  earning  power  of 
railroads;  the  income  of  public  utilities  may  be  affected 
by  influences  distinct  from  both  those  affecting  railroads 
and  industrials ;  while  the  credit  back  of  other  issues, 
such  as  municipals  and  governments,  must  always  require 
an  analysis  of  its  own. 

Without  going  into  too  extended  a  discussion  of  the 
subject,  we  will  begin  by  enumerating  the  several  types  of 
corporate  and  other  security  investments  which  are  gen- 
erally marketable  in  the  United  States.  They  can  be 
classified  as  follows : 

(33) 


34  How  to  Invest  Money  Wisely 

1.  Government  and  Municipal  Issues: 

a.  United  States  and  foreign  government  bonds; 

b.  State  obligations; 

c.  City  and  town  obligations ; 

d.  County  bonds ; 

2.  Railroad  Securities: 

a.  Railroad  bonds; 

b.  Railroad  guaranteed  stocks; 

c.  Preferred  stocks  ; 

d.  Common  stocks; 

3.  Public  Utility  Securities  : 

a.  Gas  and  electric  light  bonds  and  stocks; 

b.  Traction  bonds  and  stocks ; 

c.  Water  works  and  water  power  bonds; 

d.  Telegraph  and  telephone  bonds  and  stocks ; 

4.  Industrial  Securities : 

a.  Industrial  bonds; 

b.  Industrial  preferred  stocks; 

c.  Industrial  common  stocks  ; 

5.  Banking  and   Financial   Institutions; 

a.  National  bank  stocks  ; 

b.  State  bank  stocks; 

c.  Trust  company  stocks; 

d.  Title,  guaranty,  insurance  stocks,  etc. ; 

6.  Real  Estate  and  Land  Investments : 

a.  Building  concerns; 

b.  Urban  real  estate  issues; 

c.  Agricultural    loans,    farm    mortgages,    etc.; 

d.  Irrigation   and    developing   companies. 

Included  in  the  above  classification  are  practically  all 
the  American  corporation  security  investments  worthy 
of  the  name.  In  each  of  the  classes  there  are  many  is- 


Applying  the   Principles 


sues  which  respond  exclusively  to  the  prevailing  rate  for 
money,  and  are  so  well  secured  as  to  be  immune  from 
changes  in  trade  conditions,  ordinary  political  events,  de- 
pressions, etc.  But  there  are  also  in  each  class  a  vast 
number  of  issues  which  do,  to  more  or  less  degree,  re- 
spond to  specific  influences  which  are  characteristic  of 
their  class  alone. 

For  example,  take  government  and  municipal  issues. 
A  large  majority  of  municipal  bonds  in  the  United  States 
are  on  a  high  investment  plane;  they  are  so  well  pro- 
tected by  legislative  enactment  that  only  changes  in  the 
money  rate  and  the  general  price  for  capital  will  affect 
their  values.  But  this  is  not  true  in  all  cases,  and  there 
are  many  instances  which  can  be  named  where  municipal 
securities  have  defaulted  or  have  depreciated  greatly  in 
price,  as  a  result  of  over-expansion  of  municipal  debts, 
land  booms,  etc.  And  in  the  field  of  government  issues 
we  have  instances  enough  in  very  recent  years  of  great 
changes  in  value  resulting  from  specific  influences.  A 
decade  ago,  the  bonds  of  the  Russian  government  were 
being  offered  in  New  York  at  very  high  figures,  while 
those  of  Japan  went  begging.  But  today  Japanese  bonds 
sell  far  higher  and  Russian  bonds  far  lower  than  at  that 
time.  Mexican  bonds  a  generation  ago  could  not  find 
any  market  in  New  York,  but  nowadays  they  are  held 
by  a  large  class  of  careful  investors.  Political  changes 
have  brought  these  things  about,  and  thus,  in  judging 
securities  of  this  particular  type,  the  political  factor  is  the 
most  important  thing  to  take  into  consideration.  And 
when  we  consider  the  investment  position  of  United 


36  How  to  Invest  Money  Wisely 

States  bonds,  the  legislative  factor  is  of  course  the  prime 
one.  United  States  bonds  do  not  sell  twenty  points 
higher  than  British  consols  because  the  credit  of  this 
country  is  better  than  that  of  Great  Britain,  but  simply 
because  our  National  Bank  Act  requires  that  these  bonds 
be  used  for  bank  circulation.  This  law  gives  them  a 
high  value,  which  would  at  once  be  lost  should  the  law 
be  repealed.  Left  by  themselves,  United  States  bonds 
would  respond  to  the  general  interest  rate,  or  money-rate 
factor,  just  as  British  consols  or  French  rentes  do. 

In  the  railroad  field,  we  have  already  discussed,  in  a 
brief  way,  the  factors  which  influence  the  prices  of  or- 
dinary stocks  and  bonds.  The  earning  power  of  the  prop- 
erty is  the  primary  influence  here,  and  a  study  of  this 
earning  power  leads  us,  of  course,  into  a  complete  an- 
alysis of  the  properties  themselves,  their  past  record, 
their  present  management,  the  location  of  the  roads,  their 
alliances,  the  character  of  their  tonnage,  efficiency  of 
operation,  etc.  Of  course,  political  factors  have  their  in- 
fluence with  the  railroads,  just  as  crop  conditions  have, 
but  the  management  of  the  business  is  the  first  thing  to 
be  considered. 

In  industrial  securities  there  are  various  questions, 
which  affect  different  types  of  undertakings  in  different 
degrees.  Industrial  concerns  are  of  so  many  different 
.  that  no  general  fixed  rule  for  ascertaining  values 
can  be  applied  here  as  completely  as  in  the  case  of  the 
railroads.  Character  of  management  is  of  first  impor- 
tance ;  type  of  business  is  equally  important.  Past  records, 
advantages  over  possible  competitors,  such  as  the  posses- 


Applying  the  Principles  37 

sion  of  raw  materials,  control  over  markets,  protection 
by  means  of  tariffs  and  other  forms  of  monopoly,  are  the 
things  to  take  into  consideration.  As  in  all  other  cases, 
the  political  factor  comes  in  here  for  due  consideration. 

Public  utility  securities  are,  in  a  sense,  in  a  class  by 
themselves.  Unlike  the  railroad  field,  we  do  not  first  turn 
to  earnings  when  examining  a  public  utility  enterprise. 
The  main  thing  which  interests  us  is  the  franchise. 
Knowing  the  nature  of  that,  we  then  examine  the  location 
of  the  property,  the  population  growth,  the  geographical 
advantages  which  may  bear  on  future  growth,  etc.  But 
we  also  consider  very  carefully  the  political  side ;  for  a 
franchise,  even  when  exclusive,  may  not  in  time  be  such 
a  valuable  thing  after  all.  Taxation  can  squeeze  the  value 
out  of  a  franchise  if  public  sentiment  so  decrees. 

Securities  of  banking  and  financial  institutions  in  mod- 
ern times  have  opened  a  wide  field  for  investment.  The 
records  of  growth  in  this  line  of  business  in  the  United 
States  during  the  past  twenty  years  are  simply  marvelous. 
When  passing  upon  securities  of  this  type,  we  of  course 
consider  the  location,  character  of  management,  past 
record,  general  financial  strength,  alliances  with  other 
interests,  etc. 

Real  estate  and  land  investments  are  in  a  class  by  them- 
selves, and  in  this  field  the  pitfalls  for  the  real  investor 
are  even  more  numerous  than  in  other  lines.  Urban  real 
estate  loans  carefully  selected  are  among  the  very  best  of 
investments,  while  farm  mortgages,  unless  selected  with 
unusual  care,  are  among  the  most  dangerous.  The  latter 
can  also  be  said  of  irrigation  and  development  projects. 


How  to  Invest  Money  Wisely 


It  will  be  realized  when  this  very  broad  field  of  invest- 
ment is  considered,  that  it  offers  wide  scope  for  diversifi- 
cation. It  also  requires  the  greatest  possible  care  and 
study  in  the  matter  of  selection.  But  when  proper  prin- 
ciples are  followed  in  the  matters  of  distribution  and 
selection,  the  reward  is  well  worth  the  trouble.  If  an  in- 
vestor confines  his  capital  entirely  to  one  class,  such  as 
railroad  issues,  even  though  he  carefully  distributes  his 
risks  and  selects  different  types  of  bonds  or  stocks  within 
this  field,  he  may  find  that  after  all,  especially  during 
periods  of  panic  or  depression,  his  average  values  have 
declined,  and  his  income  has  been  cut  down.  But  if  he 
uses  equal  care,  and  also  selects  issues  in  one  of  the  other 
fields,  he  will  be  surprised  to  find  that  after  all  his  prin- 
cipal has  been  kept  intact  and  his  income  maintained. 
To  illustrate  this  take  the  panic  period  of  1907  and  1908. 
The  man  who  held  only  railroad  issues  saw  the  earnings 
of  all  his  properties  drop  perpendicularly,  and  the  quota- 
tions on  his  stocks  and  bonds  dropped  with  them.  But 
if  a  portion  of  his  principal  had  been  in  good  public 
utility  bonds,  carefully  selected,  he  would  have  been  in  a 
much  stronger  position.  As  the  records  show,  while  steam 
railroad  earnings  dropped  frightfully  during  that  period, 
the  earnings  of  all  the  best  public  utility  enterprises  actu- 
ally increased.  American  Telephone  &  Telegraph  re- 
ported the  best  results  of  its  history  during  1908;  many 
lighting  and  gas  companies  in  the  centers  of  population 
did  the  same.  The  panic  had  no  adverse  effect  whatever 
on  their  operations. 

Having  briefly  outlined  the  main  principles  of  proper 


Applying  the   Principles 


investment  distribution,  I  append  below  an  example  of 

how  such  principles  might  be  applied  in  a  limited  way,  to 
a  fund  of  $100,000.  Even  when  applied  in  this  incom- 
plete way,  the  investor  limits  the  risk  to  a  very  large  de- 
gree, while  putting  himself  in  position  to  receive  the 
benefit  to  some  extent  in  the  growth  in  value  of  equities  : 

Group  L    Railroad  Issues  —  a.     Bonds. 

Price.  Cost. 

$5,000  Atchison  Trans-Short  Line  4s  ............  at    94  $4,700 

5,000  Illinois  Cent,  refunding  4s.  ...  .............  at     96  4,800 

5,000  Lake    Shore    4s  ..........................  at     93  4,650 

5,000  Reading-Jer.   Cent.  4s  ....................  at     98  4,900 

b.  Stocks. 

5,000  Pennsylvania  R.  R.  stock  .................  at  122  6,100 

5,000  Norfolk  &  Western  stock  ................  at  107  5,350 

5,000  Kansas  City  Southern  preferred  ..........  at     60  3,000 

Group  II.   Industrial  Issues  —  a.   Bonds. 

$5,000  Armour  Real  Est.   4^s  ..................  at    92  $4,600 

5,000  du  Pont  Powder  4^s  ....................  at     85  4,250 

5,000  Vir-Car.   Chem.  5s  .......................  at  100  5,000 

b.  Stocks. 

5,000  Amer.  Sugar  preferred  ...................  at  120  6,000 

5,000  Inter.  Harvester  preferred  ................  at  120  6,000 

Group  III.     Public  Utilities  —  a.    Bonds. 

$5,000  Amer.  Tel.  &  Tel.  conv.  4s  ...............  at  110  $5,500 

5,000  N.  Y.  Gas,  El.  Lgt.  &  Power  4s  ..........  at    88  4,400 

5,000  Minn.  Gen.  Electric  5s  ...................  at  100  5,000 

b.  Stocks. 

5,000  Laclede  Gas  stock  .......................  at  105  5,250 

5,000  Amer.  Light  &  Traction  pfd  ..............  at  105  5,250 

Group  IV.    Municipals. 

$5,000  New  York  City  4J4s  of  1917  or  1960  ......  at  103  $5,150 

5,000  Denver  City  5s  of  1919  ..................  at  102  5,100 

5,000  Chicago  City  4s  ..........................  at  100  4,000 

(Prices  are  those  of  May,  1912.) 


40  How  to  Invest  Money  Wisely 

The  above  scheme  of  investment  embraces  many  ele- 
ments of  strength  and  relatively  few  weaknesses.  It  will 
be  noted  that  the  distribution  over  the  different  groups 
is  broad;  about  35%  being  confined  to  railroad  stocks  and 
bonds,  about  25%  to  industrial  issues,  about  25%  to  pub- 
lic utilities  and  about  15%  to  municipals.  The  subdivi- 
sions are  also  carefully  worked  out.  In  the  railroad  group 
due  regard  is  given  to  location  as  well  as  to  the  type  of 
the  security  itself.  Thus,  the  seven  issues  included  have 
their  own  distinct  elements  of  strength,  and  are  broadly 
distributed.  One  is  located  in  the  far  West,  being  de- 
pendent upon  conditions  in  that  section ;  another  is  se- 
cured on  a  standard  property  in  the  Central  States  (Illi- 
nois Central);  a  third  on  the  great  Vanderbilt  lines; 
another  on  the  anthracite  coal  industry;  another  on  a  soft 
coal  road;  another  on  the  Pennsylvania  system,  and  an- 
other on  a  road  extending  from  Kansas  City  to  the  Gulf. 
No  broader  distribution,  confined  to  the  borders  of  the 
United  States,  could  be  made,  as  far  as  railroad  issues 
are  concerned. 

In  the  Industrial  Group  every  security  suggested  is  in- 
dependently based  on  distinct  industries,  located  in  par- 
ticular parts  of  the  country,  and  responsive  in  large  de- 
gree to  distinct  conditions.  The  same  facts  apply  to  the 
Public  Utilities  suggested,  while  the  municipal  sugges- 
tions are  distributed  between  the  East  and  the  West. 

The  advantages  of  an  investment  arrangement  of  this 
kind  are  not  confined  to  the  question  of  security  of  prin- 
cipal alone.  While  the  fund  is  so  distributed  that  the 
average  value  of  the  principal  should  be  preserved  in 


Applying  the   Principles  41 

good  and  bad  times,  and  where  the  higher  class  bond  issue 
may  tend  to  decline,  increasing  earnings  will  cause  the 
stock  issues  to  rise,  and  vice  versa,  the  distribution  takes 
into  account  the  yield  on  the  money  also.  The  above  list 
would  represent  a  market  cost  at  the  present  time  of 
nearly  $100,000  on  which  the  net  average  yield  would  be 
about  5%.  Had  the  fund  been  placed  exclusively  in  rail- 
road or  municipal  issues,  no  greater  assurance  of  the  in- 
tegrity of  the  principal  could  have  been  secured,  and  the 
yield  would  probably  not  average  over  4j4%-  Compare 
this  arrangement  with  the  list  of  "high-grade"  railroad 
bonds  presented  in  Chapter  II.,  showing  a  yield  of  less 
than  4%. 

Another  advantageous  feature  in  the  above  exhibit  is 
that  the  issues  are  all  listed  and  have  a  ready  market. 


VI 
Further  Application  of  Sound  Principles 

I  HAVE  already  emphasized  the  disadvantages  of  in- 
vesting all  one's  capital  in  long  term  "high-grade" 
railroad  issues.  These  comments  may  bring  forth 
some  criticism,  many  people  saying  that  if  a  bond  is 
absolutely  secure  and  there  is  no  doubt  of  the  principal 
ultimately  being  paid,  then  it  matters  not  what  the  market 
value  of  that  bond  may  be  at  any  time  prior  to  maturity. 

But  in  most  cases  it  matters  a  great  deal.  Of  course, 
if  an  institution,  such  as  a  savings  bank,  buys  bonds 
with  the  positive  intention  of  holding  them  until  they 
mature,  it  need  not  be  disturbed  about  temporary  declines 
in  market  value ;  but  not  so  the  average  investor.  I  will 
ask  any  investor  who  reads  this  book,  if  he  is  altogether 
satisfied  with  his  investment,  made  ten  years  ago,  in  Illi- 
nois Central  4s,  then  selling  at  114^,  and  now  selling  at 
100.  If  he  is,  then  all  I  can  say  is  that  he  is  a  very  pecu- 
liar person.  I  know  that  I  would  not  be  satisfied. 

Another  point  that  has  been  raised  is  that  while  some 
high-grade  bonds  have  declined  during  the  past  ten  years 
from  the  abnormally  high  prices  of  1902,  yet  all  have  not, 
and  it  is  therefore  claimed  that  there  is  no  reason  to 
assume  that  this  tendency  towards  lower  market  prices 
will  continue  during  the  decade  to  come. 

(43) 


44  How  to  Invest   Money  Wisely 

Of  course,  all  high-grade  bonds  have  not  declined. 
Those  issues  of  comparatively  short  maturity,  which  in 
1902  were  selling  in  the  neighborhood  of  their  par  value 
and  below,  have  not  declined.  And  they  should  not  de- 
cline, because  their  redemption  day  is  not  far  off.  Take 
Baltimore  and  Ohio  prior  lien  3*^s.  In  1902  they  sold 
at  an  average  price  of  about  91^2  ;  now  the  same  bonds 
sell  at  93.  They  were  high-grade  ten  years  ago ;  they  are 
high-grade  now.  But  during  the  decade  the  approaching 
maturity  has  been  an  increasing  factor  in  steading  their 
market  price,  and  in  spite  of  the  world  wide  tendency  for 
issues  of  much  longer  maturity  to  decline,  these  Baltimore 
and  Ohio  3^s  have  advanced.  They  are  likely  to  con- 
tinue their  advance  quite  steadily  during  the  next  thirteen 
years,  until  they  mature  at  par  in  1925.  Thus,  for  a  3l/2 
per  cent  "prime"  railroad  issue,  there  is  probably  little 
better  than  Baltimore  and  Ohio  3^s. 

In  time,  but  not  during  the  present  decade,  nor  for  a 
long  time  after,  issues  like  C.  B.  &  Q.  3^s,  New  York 
Central  3y2 s,  Lake  Shore  3^2 s,  etc.,  will  begin  to  respond 
to  the  same  special  influence,  and  the  day  will  surely  come 
when  these  bonds  will  be  most  desirable  investment  pur- 
chases. But  the  fact  must  not  be  overlooked  that  before 
that  day  arrives,  most  of  us  will  have  been  a  long  time 
dead. 

While  high-grade  bonds  of  short  maturity,  bearing  low 
rates  of  interest,  are  usually  most  attractive  investments, 
those  bearing  higher  rates  do  not  look  so  attractive.  A 
man  buys  a  6  per  cent  bond,  maturing  in  ten  or  twelve 
years,  and  pays  115  for  it.  At  this  price  the  yield,  as- 


Further  Application  of  Sound  Principles       45 

suming  that  the  bond  will  be  paid  off  at  par,  would  be 
about  4%  per  cent  per  annum.  The  investor  must  re- 
member that  the  premium  of  15  per  cent  which  he  has 
paid,  will  never  come  back  to  him,  and  that  he  must  de- 
duct it  from  the  interest  he  receives  from  year  to  year. 
But  this  is,  at  best,  a  most  unsatisfactory  situation,  and 
the  average  investor  will  find  it  much  more  desirable  to 
have  a  4  per  cent  bond  at  a  price  below  par,  and  yielding 
4l/4  per  cent,  than  one  on  which  he  must  set  aside  each 
year  a  portion  of  his  interest  for  depreciation  of  his 
principal. 

And  then,  many  investors  are  prone  to  overlook  the 
necessity  for  amortizing  their  investments  in  this  way. 
At  the  beginning,  there  seems  no  necessity,  as  the  bonds 
have  a  long  time  to  run,  and  they  therefore  simply  spend 
their  interest  each  year,  until,  as  the  bond  nears  maturity, 
they  are  brought  up  with  a  round  turn  by  the  fact  that 
the  market  price  has  slumped  forever,  and  they  see  that 
they  have  really  been  living  on  a  part  of  their  principal 
without  realizing  it.  An  illustration  of  this  fact  was 
brought  to  my  attention  a  short  time  ago.  A  certain  in- 
dividual inherited  an  estate  amounting  to  about  $40,000, 
all  being  invested  in  high-grade  railroads,  governments 
and  municipals.  The  investments  had  been  made  about 
twenty  years  ago,  and  all  the  issues  had  paid  their  inter- 
est regularly.  The  owner  of  the  bonds  had  lived  on  his 
interest  and  had  paid  no  attention  to  the  fact  that  nearly 
all  the  issues  were  steadily  nearing  maturity.  As  it  hap- 
pened, every  bond  on  the  list  (and  there  were  over  twenty 
of  them)  will  mature  prior  to  1928  and  some  mature 


46  How  to  Invest  Money  Wisely 

prior  to  1916.  Also,  every  issue  was  bought  at  a  pre- 
mium, some  as  high  as  122. 

The  list  looked  very  attractive,  but  when  the  heir  of 
this  estate  came  to  have  the  securities  appraised,  he  found 
that  its  value  had  shrunk  from  over  $40,000,  within  the 
twenty  year  period,  to  about  $35,000,  and  that  between 
the  present  time  and  maturity,  it  would  shrink  further 
to  about  $33,000.  Thus,  the  original  owner  had  not  only 
been  spending  all  his  interest,  but  in  the  period  named 
had  consumed  $5,000  (\2l/2  per  cent)  of  his  principal 
also. 

Now,  if  this  fund  had  been  invested  in  bonds  of  equal 
security,  bearing  lower  rates  of  interest,  and  some  real 
attempt  at  diversification  had  been  made,  the  owner  would 
never  have  made  the  mistake  of  living  on  his  principal 
in  this  fashion. 

To  show  that  my  contention  regarding  the  steadily  de- 
clining tendency  of  long  term,  high-grade  bonds  has  not 
been  confined  to  a  few  issues  during  the  past  ten  years,  I 
present  on  page  47  a  price  comparison  from  1902  to  date, 
embracing  fifteen  representative  long  term  high-grade 
railroad  issues. 

Thus,  an  original  investment  of  $16,235.00,  on  which 
the  yield  per  annum  in  interest  was  $575,  had  depreciated 
no  less  than  $1,985,  or  over  12  per  cent,  within  the 
period  named.  The  total  amount  of  interest  received  in 
the  ten  years  was  $5,750,  but  in  order  not  to  encroach 
on  his  principal  the  investor  would  have  to  deduct 
$1,985  from  the  interest  received,  leaving  income  of  but 
S^.765  for  the  decade,  or  less  than  2y2  per  cent  per 
annum. 


Further  Application  of  Sound  Principles       47 


Prices 

Sept. 

Title  of  bond :                                      Due  1902  1912 

Allegheny  Valley  4s 1942            108  100 

Atch.  gen.  4s 1995             103  97 

Balto.  &  Ohio  4s 1948            102  96 

Cent,  of  N.  J.  5s 1987            136^  118 

C.  B.  &  Q.  111.  Div.  3l/2s 1949             101  84 

C.  M.  &  St.  Paul  gen.  4s 1989            113  97 

Chic.  &  Nor.  W.  3l/2s 1987            104  84 

111.  Cent.  1st  4s 1951             114^  101^4 

111.  Cent.  St.  L.  Div.  3s 1951              87l/2  72l/> 

Lake    Shore   3^s 1987            107  88 

Lehigh  Valley  4^s 1940  117^  104^ 

N.  Y.   Cent.  3^s 1997  106^  ttl/2 

Nor.    Pacific    4s 1997  104^  98 

Union  Pacific  1st  4s 1947            104^  99 

West   Shore   4s 2361            114  98^4 

The  net  result  of  an  investment  list  of  this  kind  (ex- 
pressed in  $1,000  bonds)  if  made  ten  years  ago,  is  shown 
by  the  table  below. 


Cost 

Due  1902 

Allegheny  Valley  4s 1942  $1,080.00 

Atch.   gen.   4s 1995  1,030.00 

Balto    &  Ohio  gen.  4s 1948  1,020.00 

Cent,  of  N.  J.  5s 1987  1,365.00 

C    B.  &  Q.  3^s 1949  1,010.00 

C.  M.  &  St.  Paul  4s 1889  1,130.00 

Chic.  &  N.  W.  3^s 1987  1,040.00 

111.    Cent.    4s 1951  1,145.00 

111.   Cent.    St.   L.   3s 1951  875.00 

Lake    Shore    3^s 1987  1,070.00 

Lehigh   Valley   4^s 1940  1,175.00 

N.  Y.  Cent.  3^s 1997  1,065.00 

Nor.   Pacific  4s 1997  1,045.00 

Union    Pacific    4s 1947  1,045.00 

West    Shore    4s 2361  1,140.00 


Selling 

Value 

Loss  in 

1912 

Principal 

$1,000.00 

$80.00 

970.00 

60.00 

960.00 

60.00 

1,180.00 

185.00 

840.00 

170.00 

970.00 

160.00 

840.00 

200.00 

1,017.50 

127.50 

725.00 

140.00 

880.00 

190.00 

1,045.00 

130.00 

855.00 

210.00 

980.00 

65.00 

990.00 

55.00 

987.50 

152.50 

Totals $16,235.00    $14,250.00     $1,985.00 


48  How  to  Invest  Money  Wisely 

It  should  be  remembered  that  this  is  not  an  extreme 
case.  Nearly  all  the  issues  included  in  this  list  carry 
either  3%  or  4  per  cent.  If  we  made  up  such  a  list  of 
5  and  6  per  cent  bonds  of  the  same  type  of  maturity, 
security,  etc.,  the  depreciation  would  be  much  greater. 

I  shall  next  present  some  examples  of  results  where 
the  factor  of  maturity  is  taken  into  consideration  in  an 
intelligent  way. 


VII 

The  Factor  of  Maturity  in  Bonds 

TAKING  into  consideration  the  general  principles 
for  distributing  investments  which  we  have  al- 
ready discussed,  it  may  be  wise  to  present  some 
examples  showing  the  advantages  which  could  have  been 
gained  by  applying  these  principles,  even  in  a  limited 
way,  ten  years  ago. 

To  select  an  intelligent  investment  list  of  bonds  in  the 
year  1902  was  no  easy  matter.  All  bond  issues  were  then 
ranging  at  high  prices,  as  there  had  been  a  steady  ad- 
vance in  quotations  for  a  period  of  four  years,  and  the 
world's  rates  for  money  had  held  at  low  figures  for  more 
than  half  a  decade.  This  was  the  time  when  all  the  really 
high  grade  Zl/2  and  4  per  cent  bonds  of  long  maturities 
were  selling  far  above  par,  and  to  the  average  man  it 
seemed  pr.actically  impossible  to  select  bonds  for  perma- 
nent investment  without  paying  premiums  of  from  five 
to  fifteen  points. 

Thus,  it  was  a  period  when  the  importance  of  selecting 
bonds  of  relatively  short  maturities  applied  with  particu- 
lar force.  But,  as  shown  by  the  examples  below,  even  at 
that  time  one  might  have  selected  good  bonds  which,  dur- 
ing the  ten  years  following,  have  continuously  ranged  at 

(49) 


50  How  to  Invest  Money  Wisely 

firm  prices  and  are  today  quoted  at  better  figures  than 
when  the  purchases  were  made.  The  possibility  of  this 
is  illustrated  by  Example  No.  1,  below. 

Example  1.    Railroad  Issues. 


Price 

Price 

Jan.,  1903 

Jan.,  1912 

Atch.,  T.  &  S.  F  ,  East.  Okla.  div.  4s,  due  1928    94 

96^ 

Balto.  &  Ohio,  S   W   div  S^s,  due  1925  89 

91 

C    B   &  Quincy  coll   4s    due  1921  95 

98 

Col   &  So   first  4s    due  1929                                       93 

97 

Houston  &  Texas  Cent.  4s.  due  1921.  .                    93 

95 

In  all  the  above  cases  it  will  be  noted  that  the  prices  of 
January,  1912,  were  higher  than  those  recorded  at  the 
close  of  1902.  And  this  fact  is  chiefly  due  to  the  ap- 
proaching maturity  of  the  issues.  It  may  be  true  that 
some  of  these  bonds  have  improved  in  actual  investment 
position,  and  intrinsically  are  stronger  than  they  were 
ten  years  ago,  but  nevertheless,  had  they  been  issues  of 
long  maturity,  they  would  today,  in  practically  all  cases, 
be  selling  at  lower  figures.  The  only  year  in  which  any 
material  decline  has  been  shown  in  these  issues  from  the 
average  prices  of  1902  and  1903,  was  in  1907,  when,  in 
common  with  every  type  of  bond,  there  was  a  temporary 
slump  during  the  panic  days. 

We  might  present  an  illustration  of  the  same  kind  re- 
garding public  utility  issues.  It  was  much  more  difficult 
ten  years  ago  to  select  good  public  utilities  than  it  is  to- 
day, but  the  following  five  bonds  will  serve  to  illustrate 
the  point. 


The  Factor  of  Maturity  in  Bonds  51 

Example  2.    Public  Utility  Issues. 

Price  Price 

Jan.,  1903  Jan.,  1912 

Detroit  City  Gas  5s,  due  1923 96  98 

Cleveland,  Elyria  &  W.  first  5s,  due  1920 95  98 

Cleve.,  Painesville  &  Eastern  first  5s,  due  1916    96  100 

East  St.  Louis  &  Sub.  coll.  5s,  due  1932 96  96^ 

Houston  Electric  first  5s,  due  1925 96  99 

As  in  the  case  of  the  railroads,  all  good  first  liens  on 
public  utilities  were  in  1902  selling  at  relatively  high 
prices,  and  this  was  especially  true  of  those  having  long 
maturities.  But  nevertheless,  there  were  some  issues, 
such  as  the  above,  which  would  have  stood  a  strong  in- 
vestment test,  and  which,  because  of  the  approaching 
maturities,  were  pretty  certain  to  enhance  in  value  during 
the  ensuing  years. 

The  same  test  could  be  put  to  other  types  of  bonds  with 
the  same  general  result. 

But  the  average  investor,  while  interested  in  being 
shown  what  he  might  have  done  a  decade  ago,  is  naturally 
more  interested  in  the  vital  question  of  what  may  be 
the  wise  thing  to  do  at  the  present  time.  I  therefore  sub- 
mit below  lists  of  good  railroad  and  public  utility  bonds 
of  relatively  short  maturities  and  which  can  be  bought 
at  or  under  par.  It  may  be  pointed  out  that  the  present 
(1912)  appears  to  be  a  far  more  opportune  time  for 
properly  arranging  investment  lists  than  has  been  the  case 
for  a  good  many  years.  Prices  of  all  investment  issues 
are  low  today,  as  compared  with  earlier  years,  and  while 


52  How  to  Invest  Money  Wisely 

it  may  be  that  we  will  not  see  very  much  higher  prices 
reached  for  some  time,  yet  selections  can  clearly  be  so 
made  that  full  principal  can  be  maintained,  and  in  some 
cases,  income  can  be  increased.  From  the  list  below  the 
investor  who  is  ultra  conservative,  and  wishes  to  take  no 
speculative  risks  whatever,  can  select  absolutely  safe  is- 
sues, while  the  investor  who,  making  the  safety  of  his 
principal  his  first  thought,  wishes  to  get  the  benefit,  to 
a  certain  extent,  of  enhancement  in  earning  power  of  the 
properties  covered,  during  the  years  to  come,  can  add 
other  issues  of  more  speculative  characteristics. 

The  following  list  of  thirty-five  standard  representa- 
tive railroad  bonds  affords  considerable  scope  for  intelli- 
gent investment  selection.  As  will  be  noted,  not  a  single 
bond  in  this  list  is  quoted  at  a  premium,  and  some  of  the 
issues  are  selling  well  below  their  par  values.  They  are 
all  bonds  of  relatively  short  terms,  most  of  them  matur- 
ing within  twenty-five  years. 

As  for  the  actual  standing  and  security  of  these  issues, 
a  brief  examination  of  the  facts  will  show  how  strong  they 
all  are.  For  example,  the  Eastern  Oklahoma  4s  of  the 
Atchison  system  are  a  first  lien  on  480  miles  of  road  at 
$20,000  per  mile;  they  are  a  direct  obligation  of  the  main 
system,  and  for  the  full  ten  years  have  been  protected  by 
a  very  heavy  margin  of  safety.  The  Brunswick  &  West- 
ern 4s  are  an  underlying  lien  of  the  Atlantic  Coast  Line 
Railroad,  are  secured  by  first  mortgage  at  less  than 
$9,000  per  mile,  and  have  been  assumed  by  the  parent 
company.  The  Silver  Springs,  Ocala  &  Gulf  4s  are  also 
an  underlying  assumed  bond  of  the  Atlantic  Coast  Line 


The  Factor  of  Maturity  in  Bonds  .">:! 

Railroad  Bonds. 

Price 
Sept.,  1912 

Atchison  (East  Okla.  div.)  first  4s,  due  1928 96 

Brunswick  &  Western  gtd.  first  4s,  due  1938 95 

Silver  Springs,  Ocala  &  Gulf  gtd.  4s,  due  1918 97 

Baltimore  &  Ohio  prior  lien  3^s,  due  1925 91 

Baltimore  &  Ohio  Pitts.  Jc.  &  M.  D.  3^s,  due  1925. . . 

Pittsburg  &  Western  first  4s,  due  1917 97 

C.  B.  &  Q.  Nebraska  Ext.  4s,  due  1927 98 

Chic.,  Rock  Isd.  &  Pacific  refd.  4s,  due  1938 87 

Chic.,  Rock  Isd.  &  Pacific  col.  Tr.  "P,v  due  1918 

C.,  M.,  St.  Paul  &  Omaha  cons.  3>^s,  due  1930 91 

Colorado  &  Southern  first  4s,  due  1929 94 

Cinn.,  Ind.,  St.  Louis  &  Chic,  first  4s,  due  1936 96 

New  York,  Lack.  &  W.  Term.  &  Imp.  4s,  due  1923. ...  98 

Del.  &  Hudson  10-year  conv.  deben.  4s,  due  1916 98 

Denver  &  Rio  Grande  first  cons.  4s,  due  1936 *     86 

Rio  Grande  Western  first  trust  4s,  due  1939 82 

St.  Paul,  Minn.  &  Man.  cons.  4s,  due  1933 98 

St.  Paul,  Minn.  &  Man.  Montana  Ext.  first  4s,  due  1937 

Carbondale  &  Shawneetown  first  4s,  due  1923 95 

Long  Island  R.  R.  first  cons.  4s,  due  1931 95 

Missouri  Pacific  trust  5s,  due  1917 

Missouri  Pacific  first  coll.  5s,  due  1920 97 

Central  Branch  Railway  first  guar.  4s,  due  1919 92 

Lake  Shore  &  Mich.  So.  deben.  4s,  due  1928 92 

Lake  Shore  &  Mich.  So.  deben.  4s,  due  1931 92 

Michigan  Central  deben.  4s,  due  1929 88^? 

Pennsylvania  R.  R.  conv.  3J^s,  due  1915 97>^ 

Sunbury  &  Lewistown  first  4s,  due  1936 97 

Pennsylvania  Company  guar.  4s,  due  1931 97 

Seaboard  Air  Line  Atl.-Birmingham  first  4s,  due  1933. .  88 

Southern  Pacific  Co.  conv.  4s,  due  1929 94 

Central  Pacific  guar.  3^s,  due  1929 91 

Houston  &  Texas  Central  gen.  4s,  due  1921 95 

South  Pacific  Coast  first  gtd.  4s,  due  1937 96 

Oregon  Shore  Line  gtd.  ref.  4s,  due  1929 


.">4  How  to  Invest  Money  Wisely 

Railroad  and  are  a  first  mortgage  at  less  than  $8,000  per 
mile.  The  Pittsburg  &  Western  first  4s  are  an  underlying 
lien  on  the  Baltimore  &  Ohio  system,  are  limited  to  only 
$3,000  per  mile,  and  are  provided  for  in  one  of  the  re- 
funding mortgages  of  the  Baltimore  &  Ohio.  The  Cin- 
cinnati, Indianapolis,  St.  Louis  &  Chicago  first  4s  are  an 
assumed  bond  of  the  Cleveland,  Cincinnati,  Chicago  &  St. 
Louis  system,  and  are  very  high  grade.  The  Carbonclale 
&  Shawneetown  first  4s  are  a  divisional  lien  of  the  Illi- 
nois Central,  and  are  provided  for  in  the  latters  St. 
Louis  Division  mortgage.  The  Central  Branch  Railway 
first  4s  are  one  of  the  smaller  underlying  issues  of  the 
Missouri  Pacific  system  and  are  absolutely  secure. 
The  Sunbury  &  Lewistown  first  4s  are  an  under- 
lying divisional  issue  of  the  Pennsylvania  system. 
Houston  &  Texas  Central  general  4s  are  a  divisional  bond 
of  the  Southern  Pacific  and  the  Oregon  Short  Line  guar- 
anteed refunding  4s  are  secured  by  valuable  collateral 
of  Union  Pacific.  In  fact,  every  one  of  these  issues 
enjoys  a  high  investment  position,  and  they  are  all  rated 
either  "Aaa"  or  "Aa"  in  "Moody's  Analyses  of  Railroad 
Investments." 

Of  course  there  are  many  other  good  railroad  bonds  of 
short  maturity,  and  with  equal  strength,  which  might  be 
included  in  a  list  for  investment  selection.  But  the  above 
have  the  additional  merit  of  being  marketable,  and  with 
selling  records  back  of  them  which  add  to  their  attractive- 
ness. In  addition  to  such  bonds  as  these,  we  find  in  the 
railroad  field  a  multitude  of  equipment  issues,  most  of 
which  mature  serially  in  from  one  to  fifteen  years.  In 


The  Factor  of  Maturity  in  Bonds  5."> 

any  important  investment  list,  many  such  short  term  is- 
sues can  be  wisely  included.* 

But  the  above  list  covers  railroad  bonds  only.  There 
is  the  wide  field  of  public  utility  corporation  bonds  yet 
to  be  referred  to.  I  append  below  a  limited  list  of  such, 
which  have  the  same  characteristic  of  near-by  maturity. 

Public  Utility  Bonds. 

Prices 
1912 

Chicago  Railways  Co.  first  5s,  due  1927 100 

Cleveland  Railway  first  5s,  due  1931 100 

Cleveland,  Painesville  &  Eastern  first  5s,  due  1916 99 

Danville  St.  Ry.  &  Light  first  5s,  due  1925 99 

Grand  Rapids  Railway  first  5s,  due  1916 99 

Houghton  County  St.  Ry.  first  5s,  due  1920 97 

Illinois  Central  Traction  first  5s,  due  1933 94 

Lake  Shore  Electric  cons.  5s,  due  1923 95 

Mil.  Elec.  Ry.  &  Light  ref.  and  Ext.  4^s,  due  1931... 

Omaha  &  Council  Bluffs  Ry.  &  Bge.  first  5s,  due  1928. .  98 

Portland  (Ore.)  Ry.  first  and  ref.  5s,  due  1930 99 

Wheeling  Traction  Co.  first  5s,  due  1931 96 

Altoona  Gas  Co.  first  5s,  due  1932 97 

Detroit  City  Gas  Co.  5s,  due  1923 100 

Houghton  County  Elec.  Light  first  5s,  due  1927 96 

Oklahoma  Gas  &  Electric  first  5s,  due  1929 97 

Portland  (Me.)   Electric  Co.  first  5s,  due  1926 

Amer.  Tel.  &  Tel.  coll.  4s,  due  1929 91 

Pacific  Tel.  &  Tel.  coll.  5s,  due  1937 100 

The  foregoing  list  is  shorter  than  that  shown  for  the 
railroads  and  of  course  the  security  of  some  of  the  issues 


*A    later   chapter    discusses    the    characteristics    of    short    term    notes    and 
equipment  issues. 


56  How  to  Invest   Money  Wisely 

is  not  so  high.  But  it  is  less  easy  to  select  a  large  line  of 
public  utility  issues  of  great  strength  and  which  sell  ma- 
terially below  their  par  value.  Most  public  utility  bonds 
carry  5  per  cent  interest,  and  the  majority  of  the  strong- 
est ones  of  course  sell  either  close  to  their  par  value  or 
at  a  premium.  But,  as  in  the  case  of  all  other  bonds, 
those  issues  whose  maturity  is  not  too  far  away,  are, 
other  things  being  equal,  the  most  desirable  investments. 


PART  TWO 
INVESTING  FOR  PROFIT 


VIII 

Taking  Advantage  of  Potential  Possibilities 

THE  term,  "investing  for  profit,"  as  here  used, 
should  be  construed  as  meaning  any  method  of 
investment  where  the  motive  is  not  wholly  confined 
to  securing  a  fixed  return  on  the  principal  originally 
invested,  but  also  takes  into  consideration  the  possi- 
bilities of  increase  in  both  interest  and  principal  as  the 
time  goes  by.  Thus,  the  man  who  buys  a  stock,  for  ex- 
ample, like  Baltimore  &  Ohio,  on  the  theory  that  in  due 
course  the  dividend  rate  will  be  increased  and  conse- 
quently the  market  value  of  the  principal  enhanced,  is  to 
be  placed  in  this  class.  Such  a  man  is  to  a  certain  extent 
speculating  on  the  future,  although  if  his  judgment  is 
sound,  and  his  investment  selections  made  at  the  proper 
periods,  he  is  pretty  sure  to  meet  with  a  fair  measure  of 
success. 

For  investing  of  this  character,  the  ideal  security  is 
usually  the  common  stock  of  a  good  railroad.  It  is  true 
that  sometimes  preferred  stocks,  and  certain  types  of 
bonds,  such  as  convertible  issues,  can  be  selected  for  oper- 
ations in  this  field,  but  here  the  opportunities  are  neces- 
sarily limited.  If  it  is  determined  to  select  a  preferred 
stock,  one  must  usually  be  found  which  at  the  time  is 

(59) 


GO  How  to   Invest   Money  Wisely 

either  not  paying  its  full  dividend,  or  is  earning  only  a 
moderate  margin  above  the  dividend  requirement.  Under 
ordinary  conditions,  there  cannot  be  much  hope  of  a 
steady  and  large  advance  in  an  issue  of  this  type  which 
is  already  paying  its  full  dividend  rate  and  standing  on  a 
high  investment  plane.  In  other  words,  the  limitation 
of  both  dividend  and  value  is  fixed,  and  beyond  a  certain 
point  little  or  no  "profit"  can  be  secured  on  such  an 
issue.  It  is  true,  of  course,  that  in  times  of  extreme  de- 
pression or  of  panic,  many  attractive  purchases  can  be 
made  in  the  preferred  stock  field,  as  even  the  highest 
grade  issues  of  both  stocks  and  bonds  then  generally 
range  well  below  normal  values.  But  ordinarily,  such 
schemes  of  investment  must  be  mainly  confined  to  com- 
mon stocks. 

When  we  discuss  the  investment  of  funds  in  common 
stocks,  we  are  naturally  bordering  pretty  closely  on  specu- 
lation, even  though  it  may  be  speculation  of  an  extremely 
conservative  type.  But  any  one  familiar  with  the  subject 
will  realize  that  there  are  many  standard  railroad  stocks 
in  the  market  with  long  dividend  records  back  of  them 
which  can  fairly  be  classed  as  sound  investments.  And 
in  the  following  exhibit  I  have  selected  a  number  of 
representative  common  stocks  of  railroads,  the  majority 
of  which  have  been  steady  dividend  payers  for  many 
years,  and  which  are  in  large  part  held  by  people  who 
never  "speculate,"  and  buy  simply  for  the  return  on  the 
money  rather  than  in  the  hope  of  unusual  appreciation 
in  price.  A  rational  investment  distribution  plan  would 
to  a  large  extent  offset  the  dangers  involved  in  confining 
one's  entire  capital  to  one  or  two  issues. 


Potential  Possibilities  61 

It  will  be  seen  from  this  table  that  anyone  placing  a 
given  sum  in  equal  amounts  in  the  twenty  stocks  listed,  at 
the  high  prices  which  prevailed  ten  years  ago,  would  have 
done  exceedingly  well,  and  in  that  time  would  not  only 
have  materially  increased  his  income,  but  added  something 
to  his  principal  as  well.  Of  course,  this  list  includes  not 
only  the  best  issues  which  could  have  been  selected  in 
1902,  but  also  includes  those  active  stocks  which,  in  some 
cases,  may  not  have  looked  very  attractive  at  that  time. 
By  making  up  a  list  on  this  basis,  we  show  that  even 
without  exceptional  discrimination,  an  investment  fund 
spread  widely  over  the  railroad  common  stock  field,  would 
not  have  faired  so  badly. 

If  we  assume  that  an  investor  purchased  100  shares 
each  of  the  following  stocks  at  the  highest  prices  prevail- 
ing in  the  boom  year  1902,  he  would  have  invested  in  all, 
about  $321,900.  The  total  net  return  at  the  dividend  rates 
then  prevailing  would  have  been  $9,750  a  year,  or  a  little 
over  3  per  cent.  At  the  high  prices  of  1911  (after  nearly 
ten  years),  in  spite  of  the  diverse  fluctuations  of  the 
different  stocks — some  falling  and  some  rising — his  cap- 
ital would  have  amounted  to  $351,100,  and  his  dividend 
return,  $15,800,  or  nearly  5  per  cent  on  the  original 
amount.  At  average  prices  of  April  1,  1912,  his  invest- 
ment would  amount  in  principal,  to  $332,600,  and  his  re- 
turn this  year  would  be  $15,700. 

On  the  face  of  this  exhibit  it  would  seem  that  any 
investor  who  had  followed  this  course  ten  years  ago 
would  have  done  very  well  indeed.  In  that  time,  al- 
though he  had  witnessed  some  extreme  declines  during 


62 


How  to   Invest  Money  Wisely 


Twenty  Representative  Common  Railroad  Stocks 
(Ten  Year  Record). 


1902 
High  cost 

Atchison    $9,675 

At.  Coast  18,350 

B.  &   0 11,575 

B.  R.  &  P 12,800 

Can.    Pacific    14,525 

C.  R.  R.  of  X.  J . .  . .  19,800 

Ches.  &  0 5,750 

C.  M.  &  St.  P 19,875 

Chic.  &  X.  W 27,100 

Del.  &  H 18,450 

D.,  L.  &  \V 27,700 

Great  Nor 20,300 

111.    Cent 17,350 

Leh.  Valley   7,700 

L.  &  N 15,950 

N.  Y.  Central   16,900 

Nor.   Pacific    21,650* 

Penn.  R.  R l/.OOO 

So.    Pacific    8,125 

Union  Pacific    11,325 

$321,900 


Div. 
rate 

1911 

Div. 
rate 

Div. 
Apr.,  1912  rate 

%  High  value  % 

Value 

% 

4 

$11,675 

6 

$10,850 

6 

3l/2 

13,925 

6 

13,900 

7 

4 

10,975 

6 

10,600 

6 

4 

12,600 

5 

10,500 

5 

5 

24,700 

10 

23,350 

10 

8 

32,000 

12 

36,000 

12 

1 

8,675 

5 

7,825 

5 

7 

13,350 

7 

11,000 

5 

7 

154)50 

7 

12,200 

7 

7 

17,500 

9 

17,125 

9 

7 

57,000 

20 

56,000 

20 

7 

14,000 

7 

13,350 

7 

6 

14,700 

7 

13,175 

7 

18,700 

10 

16,700 

10 

5 

16,000 

7 

15,625 

7 

5 

11,550 

5 

11,350 

5 

7 

13,800 

7 

12,300 

7 

6 

13,000 

6 

12,450 

6 

12,650 

6 

11,200 

1 

4 

19,250 

10 

17,100 

10 

$351,100 


$332.600 


the  panic  of  1907  and  during  other  general  market  re- 
actions, yet  the  result  shows  a  net  increase  up  to  last 
April  of  $10,700  in  principal,  and  an  enlargement  of  an- 
nual income  from  $9,750  to  $15,700. 


*  For  1904. 


Potential   Possibilities  63 

But  this  is  not  by  any  means  the  whole  story.  -As  a 
matter  of  fact,  any  investor  who  had  followed  this  course 
would  have  fared  far  better  than  this,  as  the  following 
facts  show. 

SPECIAL  BENEFITS  RECEIVED. 

More  than  half  the  above  railroads  have,  since  1902, 
accorded  their  stockholders  special  benefits  in  the  nature 
of  extra  dividends,  subscription  rights,  stock  bonuses  or 
"melons,"  and  these  benefits  have  naturally  added  to  the 
attractiveness  of  the  stocks  as  investments.  For  example : 
In  1905,  the  Atlantic  Coast  Line  paid  an  extra  dividend 
of  25  per  cent,  of  which  20  per  cent  was  in  "scrip"  and 
5  per  cent  in  redeemable  certificates,  since  paid  off;  in 
1906,  the  Buffalo,  Rochester  &  Pittsburg  declared  a  25 
per  cent  dividend  in  the  stock  of  the  Mahoning  Invest- 
ment Co.,  thus  divorcing  its  coal  properties ;  in  1908,  the 
Canadian  Pacific  gave  its  stockholders  the  right  to  sub- 
scribe to  the  extent  of  20  per  cent  of  their  holdings  to 
new  stock  at  $120  per  share,  and  in  1911  gave  the  right 
to  subscribe  at  $150  to  new  stock  to  the  extent  of  9  per 
cent  of  their  holdings ;  Chicago  &  Northwestern  gave  its 
stockholders  subscription  rights  to  take  new  stock  at  par 
in  both  1907  and  1910;  Chicago,  Milwaukee  &  St.  Paul 
accorded  the  same  privilege  to  its  stockholders  in  1907 ; 
Great  Northern  in  1906  paid  a  dividend  of  100  per  cent 
in  the  Great  Northern  Ore  Certificates  and  also  gave  sub- 
scription rights  at  par  to  the  extent  of  40  per  cent  in  new 
stock ;  Illinois  Central  in  1907  gave  subscription  rights  to 
its  stockholders  for  new  stock  at  115;  Delaware,  Lacka- 


64  How  to  Invest  Money  Wisely 

wanna  &  Western  in  1909  gave  its  stockholders  a  15  per 
cent  stock  dividend,  and  permitted  them  to  subscribe  at 
par  to  the  stock  of  the  Delaware,  Lackawanna  &  Western 
Coal  Co.,  which  now  pays  10  per  cent  dividends ;  Lehigh 
Valley  in  1911  gave  its  stockholders  the  right  to  subscribe 
to  the  extent  of  50  per  cent  of  their  holdings  to  new  stock 
at  par,  and  also  declared  an  extra  dividend  of  10  per  cent 
in  the  stock  of  the  Lehigh  Coal  Sales  Co.,  which  already 
has  sold  above  $240  per  share ;  New  York  Central  gave  its 
stockholders  the  right  to  subscribe  to  new  stock  at  par  in 
1910 ;  Pennsylvania  gave  similar  rights  to  its  stockholders 
in  both  1909  and  1910;  Southern  Pacific  in  1907  gave  its 
common  stockholders  the  right  to  subscribe  at  par  to  its 
7  per  cent  preferred  stock,  which  was  called  for  payment 
at  115  in  1909,  the  stockholders  being  given  the  privilege 
of  converting  into  common,  or  into  4*/2  per  cent  bonds, 
with  $20  in  cash  on  each  share;  Union  Pacific  in  1907 
gave  its  stockholders  the  right  to  subscribe  to  the  extent 
of  25  per  cent  of  their  holdings  to  convertible  bonds  at  90. 

Thus,  without  taking  the  space  in  this  chapter  to  work 
out  the  actual  values  received  during  the  past  ten  years 
by  these  stockholders,  aside  from  ordinary  dividend  pay- 
ments, it  is  easily  realized  that  holders  of  such  stocks 
have  been  able  to  secure,  on  the  average,  far  more  than 
6  per  cent  on  their  money,  and  today  are  the  owners  of 
a  principal  sum  which  has  increased  much  more  than  the 
foregoing  table  indicates. 

This  result,  it  will  be  seen,  would  have  been  accom- 
plished by  anyone  who  followed  the  plan  of  investing  in 
equal  amounts  in  all  of  these  standard  common  stocks. 


Potential   Possibilities  65 

without  any  particular  discrimination  or  selection.  If 
scientific  principles  had  been  followed  in  the  matter  of 
selection  and  the  investment  confined  to  eight  or  ten  of 
the  strongest  and  most  promising  issues  at  that  time,  the 
net  outcome  would  have  been  even  more  favorable. 

While  at  the  present  time,  possibilities  which  were 
present  ten  years  ago  in  the  railroad  common  stock  field, 
are  few  and  far  between,  yet  intelligent  selection  of  issues 
in  a  plan  of  "investing  for  profit"  can  still  undoubtedly 
be  made  not  only  in  the  railroad  but  also  in  the  industrial 
and  public  utility  fields. 


IX 
Investment  Cycles 

IN  the  last  chapter  I  presented  an  exhibit  of  a  ten- 
year  investment  in  twenty  representative  common 
stocks  of  American  railroads,  demonstrating  that 
if  purchases  were  made  of  equal  amounts  of  these 
stocks  at  the  highest  prices  reached  in  the  year  1902 
(which,  in  a  general  way,  was  the  top  of  the  boom  period 
which  set  in  in  1897),  the  purchaser  would  today  have 
a  considerable  increase  in  his  principal,  and,  during  the 
entire  decade,  including  the  extra  dividends,  "rights"  and 
other  benefits  which  have  been  disbursed,  would  have  re- 
ceived a  return  averaging  well  above  6  per  cent  on  the 
total  investment. 

When  it  is  realized  that  during  the  past  ten  years  we 
have  been  through  a  panic  period  and  all  sorts  of  things 
have  occurred  to  affect  railroad  stock  values  adversely, 
such  as  poor  crops  for  two  years,  anti-railroad  legislation, 
aggressive  "trust-busting,"  rising  cost  of  operation  and 
declining  or  horizontal  freight  and  passenger  rates,  it  will 
be  seen  that  investments  in  good  common  stocks  of  rail- 
roads are  really  pretty  good  things  to  have  as  permanent 
propositions.  For  at  no  time  since  1902  has  there  devel- 
oped a  business  situation  or  period  where  it  could  be  as- 

(67) 


68  How  to  Invest  Money  Wisely 

serted  that  the  railroads  have  been  exceptionally  benefited. 
It  is  true  that  the  country  has  grown  steadily  enough, 
but  so  has  capitalization  grown,  and  fixed  charges  today 
are  relatively  much  higher  than  they  were  in  1902. 

But  while  it  is  interesting  to  see  how  investors  in  rail- 
road common  stocks  have  fared  when  they  have  bought 
issues  simply  on  their  individual  merits  and  without  re- 
gard to  general  business  or  investment  conditions,  and 
have  paid  no  attention  to  the  effect  on  values  of  recurring 
cycles  of  prosperity  or  depression,  a  far  more  interesting 
and  useful  study  is  to  ascertain  how  those  have  fared 
who  have  given  proper  attention  to  those  general  or  fun- 
damental factors  which  so  directly  affect  security  prices 
over  reasonably  long  periods.  One  of  the  main  things 
for  every  investor  to  do  is  to  carefully  study  the  funda- 
mental business  trend,  and  endeavor  to  ascertain  the  pe- 
riods when  investments  should  be  most  wisely  purchased 
and  when  they  should  be  sold.  For  there  are  times  when 
it  is  clearly  foolish  for  an  investor  to  buy  average  stocks 
or  bonds,  and  of  course  there  are  other  times  when  the 
investor  is  foolish  if  he  does  not  do  some  realizing — 
this  latter  being  particularly  true  of  stock  investments. 

To  illustrate.  The  year  1902,  at  the  crest  of  the  busi- 
ness and  speculative  boom,  was  not  a  time  to  buy  stocks, 
but  it  was  a  time  to  do  some  liquidating.  Conversely, 
the  year  1907,  after  the  October  panic,  was  no  period 
for  persons  to  liquidate  in,  but  it  was  a  splendid  period 
for  investing.  And  for  six  or  eight  months  after  the 
panic,  the  investment  "bargain  counter"  was  daily  dis- 
played, and  he  was  a  vorv  foolish  man  who.  having  the 


Investment  Cycles  69 

necessary  capital,  hesitated  to  buy  good,  well-tested  se- 
curities at  that  time.  Certainly,  as  far  as  my  position 
went,  for  the  whole  period  from  October,  1907,  to  the 
middle  of  1909,  I  was  steadily  recommending  the  pur- 
chase of  good  dividend  paying  stocks,  and  well  secured 
short  term  bonds. 

Returning  to  our  illustration  in  the  last  chapter,  let  us 
take  this  same  list  of  twenty  representative  railroad  stocks 
and  show  what  the  result  would  have  been  to  date,  in  the 
case  of  a  man  who,  in  addition  to  the  study  of  intrinsic 
values,  gave  proper  attention  to  investment  cycles.  This 
man  would  have  clearly  recognized  the  period  following 
the  panic  as  one  for  making  investments  aggressively.  I 
present  below  a  table  showing  the  cost  of  100  shares  of 
each  of  the  twenty  stocks,  if  purchased  on  or  about  Jan- 
uary 1,  1908  (after  the  panic  had  subsided  and  confi- 
dence was  being  restored),  and  also  the  values  of  the 
same  stocks  on  or  about  January  1,  1910,  or  two  years 
later ;  and  the  recent  values. 

This  exhibit  shows  how  well  the  investor  has  fared 
who,  during  the  past  four  years  has  taken  into  considera- 
tion the  general  business  trend  as  well  as  the  specific 
worth  of  the  properties  themselves.  It  will  be  seen  that 
an  original  investment  of  $239,100  in  January,  1908,  rose 
in  value  to  $326,400  by  the  end  of  1909  (or  within  two 
years'  time),  while  up  to  last  April  the  value  had  been 
still  further  increased  to  $338,650,  and  the  holder  is  now 
receiving  in  dividends  something  more  than  6y%  per  cent 
on  his  original  investment.  In  other  words,  his  principal 


70 


How  to  Invest  Money  Wisely 


has  appreciated  over  40%  within  about  four  years,  and 
his  dividend  return  has  been  proportionately  enlarged. 


Value 
Jan.,  1908 

Atchison     $6,900 

At.  Coast    6,850 

i  Bait.  &  Ohio  8,100 

'B.  R.  &  P 7,500 

Can.    Pacific    15,400 

C.  R.  R.  of  X.  J...  16,500 

Ches.   &    Ohio    ....  3,000 

C.  M.  &  St.   Paul..  10,425 

Chic.   &    X.    W 13,550 

Del.  &  Hud 14,750 

D.  L.    &    W 42,000 

Great    Northern    . .  11,600 

Illinois    Central    . . .  12,300 

Lehigh  Valley    ....  10,600 

L.   &   X 9,125 

X.  Y.  Central  9,025 

Xor.    Pacific    11,750 

Penn.  R.  R 10,90:J 

So.    Pacific    7,125 

Union   Pacific    .  11,700 


Totals $239,100 


Value 

Value 

Present 

Jan.,  1910 

April,  1912 

Div.  Rate 

$12,400 

$11,000 

6% 

13,600 

14,150 

7 

11,850 

10,700 

6 

10,600 

10,500 

5 

17,700 

24,500 

10 

22,900 

38,000 

12 

5,775 

8,000 

5 

15,100 

11,200 

5 

18,400 

14,400 

7 

18,125 

17,500 

9 

56,000 

55,000 

20 

14,750 

13,400 

7 

14,900 

12,900 

7 

10,900 

16,500 

10 

12,650 

15,800 

7 

12,700 

11,300 

5 

14,325 

12,400 

7 

13,225 

12,500 

6 

12,100 

11,500 

6 

18,400 

17,400 

10 

$326,400 


$338,650 


But  in  addition  to  this,  other  benefits  have  accrued. 
Since  the  opening  of  1908  the  Canadian  Pacific  stock- 
holders have  twice  received  valuable  "rights ;"  in  1910,  the 
Chicago  &  North  Western  stockholders  received  "rights ;" 
in  1909,  the  Delaware,  Lackawanna  &  Western  stock- 
holders received  a  15%  stock  dividend  with  privilege  to 


Investment  Cycles  71 

subscribe  to  the  stock  of  the  new  Coal  Sales  Co.;  the 
Lehigh  Valley  stockholders  received  "rights"  of  the  same 
kind  last  year,  and  also  stock  of  a  Coal  Sales  Co.,  which 
is  now  selling  above  $240;  both  Pennsylvania  and  Xc-w 
York  Central  have  given  their  stockholders  subscription 
rights  since  the  opening  of  1908;  etc. 

So  that,  as  a  matter  of  fact,  holders  of  these  stocks 
have  fared  a  great  deal  better  since  the  date  of  purchase 
than  the  mere  quotations  indicate. 

But  even  though  the  holding  of  all  these  stocks  which 
we  assume  were  bought  in  the  beginning  of  1908  have 
rewarded  the  investor  so  handsomely,  would  it  have  been 
the  very  wisest  judgment  to  have  kept  them  all  until  this 
time?  Was  not  the  end  of  1909  a  period  when  consid- 
erable liquidation  could  have  been  wisely  undertaken? 

Undoubtedly.  Conditions  at  the  end  of  1909  were  such 
that  a  very  severe  reaction  in  general  business  seemed  in- 
evitable. The  recovery  in  values  had  been  so  pronounced 
after  the  panic  and  the  period  of  speculation  in  many  lines 
had  gone  so  far,  that  it  did  not  require  much  shrewdness 
to  see  that  security  values  had,  as  a  rule,  reached  their 
highest  for  a  considerable  time  to  come.  For  the  pure 
speculator,  therefore,  this  was  clearly  a  period  when  sales 
should  take  the  place  of  purchases,  and  wise  "bulls" 
should  switch  to  the  "bear"  side  of  the  market.  But  how 
about  the  stock  investor ;  the  man  who  makes  it  a  rule  to 
pay  for  his  holdings  and  never  sell  what  he  does  not  own  ? 
The  proper  thing  for  him  to  have  done  was  to  sell  those 
issues  which  were  quoted  clearly  above  their  asset  values, 
and  keep  those  which  had  the  surest  potential  value  for 


How  to  Invest   Money  Wisely 


the  future.     Acting  on  this  theory,  the  investor  would 
have  liquidated  the  following  from  the  above  list: — 

Atchison  common,  then  selling  at  about  124; 
Baltimore  &  Ohio,  then  selling  at  about  118; 
St.  Paul  common,  then  selling  at  about  151; 
Chic.  &  N.  Western,  then  selling  at  about  184 ; 
Great  Northern,  then  selling  at  about  147J^ ; 
Illinois  Central,  then  selling  at  about  149; 
New  York  Central,  then  selling  at  about  127; 
Northern  Pacific,  then  selling  at  about  143. 

There  were  good  reasons  at  the  end  of  1909  and  the 
opening  of  1910  for  selling  all  of  these  stocks  at  the 
prices  then  prevailing.  Atchison  common  was  paying  out 
in  dividends  all  that  was  justified,  and  the  issuing  of  con- 
vertible bonds  clearly  indicated  that  the  road  would  not 
be  able  to  further  expand  its  dividend  rate  for  a  good 
many  years.  Therefore,  124  was  a  pretty  full  price  for 
the  stock.  Baltimore  &  Ohio  was  suffering  from  the 
freight  rate  situation,  and  it  looked  as  though  the  main- 
tenance of  even  6%  would  be  very  doubtful  during  the 
following  year ;  St.  Paul  was  spending  double  its  original 
provision  on  its  Puget  Sound  extension,  and  the  7%  divi- 
dend was  even  then  in  jeopardy;  Chicago  &  North  West- 
ern was  selling  abnormally  high  for  a  7%  stock,  even  for 
a  bull  market ;  Great  Northern  and  Northern  Pacific  were 
ranging  at  prices  not  justified  by  the  outlook,  and  New 
York  Central  was  clearly  paying  too  high  a  dividend. 

On  the  other  hand,  the  investor  would  have  been  fool- 
ish to  have  disposed  of  many  of  the  remaining  stocks  on 
the  list,  even  though  a  much  lower  stock  market  seemed 


Investment  Cycles  7:! 

to  be  in  sight.  The  asset  value  of  Atlantic  Coast  l^ine 
was  far  above  its  market  price;  Buffalo,  Rochester  & 
Pittsburg  seemed  to  have  turned  the  corner  and  was  en- 
tering a  more  satisfactory  period ;  Canadian  Pacific  had 
a  demonstrated  asset  value  of  far  above  200  even  at  that 
time,  and  larger  dividends  seemed  assured  for  the  near 
future;  Central  of  New  Jersey  promised  to  be  another 
Lackawanna,  and  it  would  have  been  foolish  to  sell  it  at 
230;  Lehigh  Valley  was  just  entering  upon  its  period  of 
recent  prosperity;  Louisville  &  Nashville  was  steadily 
adding  to  its  assets  without  increasing  its  charges,  while 
both  Southern  and  Union  Pacific  promised  to  maintain 
their  strong  positions,  in  spite  of  temporary  set-backs  in 
crops  or  general  business,  which  might  have  been  ex- 
pected. 

Now,  where  an  investor,  in  close  touch  with  general 
business  conditions,  had  done  approximately  what  I  have 
suggested  above,  and  had  liquidated  at  the  end  of  1909 
those  stocks  which  ought  to  have  been  liquidated,  and 
kept  those  which  I  have  enumerated  above,  he  would  to- 
day be  in  a  remarkably  healthy  condition.  Since  1909 
all  of  the  stocks  which  I  have  suggested  as  having  been 
wise  sales  in  1909  or  at  the,  opening  of  1910  have  sold 
anywhere  from  20  to  50  points  below  the  1909  prices.  St. 
Paul  has  been  down  to  nearly  par;  New  York  Central 
has  been  at  par;  Atchison  and  Baltimore  &  Ohio  have 
both  been  below  par ;  Great  Northern  has  sold  below  1 18 
and  Northern  Pacific  at  110.  There  have  been  plenty  of 
opportunities  to  buy  back  any  or  all  of  these  issues  since 
the  spring  of  1910  at  prices  far  lower  than  those  ranging 
recently. 


74  How  to  Invest  Money  Wisely 

Of  course,  most  people  will  say  that  this  is  all  theory 
and  does  not  work  out  in  practice.  But  here  and  there 
we  find  a  man  who  does  just  this  sort  of  thing,  and  while 
he  may  occasionally  make  a  mistake,  in  the  long  run  he 
greatly  adds  to  his  principal  by  taking  cognizance  of  these 
two  great  factors  in  selecting  investments,  viz.,  a  study  of 
the  general  trade  and  commercial  cycles,  and  an  intelli- 
gent analysis  of  intrinsic  values. 

There  is  no  reason  why  a  man  who  wishes  to  follow 
this  plan  of  investment,  should  take  a  great  deal  of  risk. 
If  he  pays  a  little  too  much  for  a  stock  of  real  intrinsic 
merit  (but  has  bought  it  in  the  proper  period)  all  that 
he  has  got  to  do  is  to  hold  it  as  an  investment  and  receive 
his  dividends ;  in  time  it  will  sell  up  to  or  above  his  cost 
price  again. 


Distribution  and  Profit  Combined 

IX  the  foregoing  pages  we  have  discussed  to  some  ex- 
tent the  methods  for  investing  money  in  common 
stocks  of  railroads  with  a  view  of  benefiting  by  price 
changes  over  reasonably  long  periods  of  time.     It  has 
been  shown  that  where  proper  selections  of  such  stocks 
were  made,  and  the  purchasing  done  in  a  period  when 
it  was  clear  that  most  stocks  were  selling  below  their 
intrinsic  or  asset  values,  very  great  advantages  have  re- 
sulted,  both   in   the   enhancement   of   principal   and   the 
increase  of  income. 

But  while  the  plan  there  outlined  of  course  appeals  to 
those  who  are  willing  to  concentrate  their  capital  in  one 
type  or  one  class  of  issues,  and  are  also  willing  to  take 
a  measure  of  chance  such  as  is  never  absent  from  pure 
stock  investments,  it  is  not  to  be  assumed  that  such  a  plan 
should  be  followed  by  all  investors,  or  that  the  principles 
of  proper  investment  diversification  should  be  ignored  to 
take  a  chance  at  an  opportunity  of  a  semi-speculative 
type.  The  examples  given  are  mainly  illustrations  of 
what  might  have  been  done,  and  what  some  investors 
actually  did  do  in  the  period  mentioned. 

At  the  same  time,  it  is  possible  to  follow  principles  of 
sound  investment  distribution  and  also  take  advantage,  to 

(75) 


76  How  to   Invest   Money  Wisely 

substantial  degree,  of  the  rise  and  fall  in  general  values 
of  securities.  In  an  earlier  chapter  I  outlined  a  plan  for 
proper  investment  diversification  and  presented  a  classifi- 
cation of  several  distinct  types  of  issues,  from  which  in- 
telligent selections  could  be  made.  The  idea  of  this  classi- 
fication was  not  only  to  spread  the  risk  among  various 
types  of  industry,  but  also  to  select  different  bonds  and 
stocks  with  a  view  of  having  one  offset  the  other  to  a 
degree  in  rises  and  falls  in  individual  values.  It  is  my 
purpose  now  to  present  a  concrete  example  of  how  a 
given  investment  fund,  invested  at  the  right  period,  and 
taking  into  consideration  all  the  general  and  specific  in- 
fluences, would  have  fared  during  the  past  four  years. 

The  period  of  a  year  or  more  after  the  panic  of  1907 
was  unquestionably  a  good  time  to  invest  in  carefully 
selected  stocks  and  bonds,  not  only  in  the  railroad  field, 
but  also  in  the  industrial,  public  utility  and  other  invest- 
ment markets.  Of  course,  the  very  best  time  to  make 
such  purchases  was  in  or  immediately  after  the  panic, 
but  panic  periods  are  not  seasons  when  the  average  man 
has  the  courage  to  do  much  buying,  even  though  he  has 
the  actual  money  available  and  knows  that  things  are 
cheap.  In  the  following  example,  therefore,  I  have 
selected  July  1,  1908,  as  the  date  on  which  the  invest- 
ments were  made.  By  this  time  general  confidence  had 
been  fully  restored;  there  was  little  in  sight  to  warrant 
lower  prices,  while  there  were  plenty  of  factors  clearly 
visible  which  pointed  to  a  revival  in  trade  and  recovery 
all  along  the  line. 

Assuming  that  the  investor  had  a  fund  of  approxi- 


Distribution  and  Profit  Combined 


77 


niately  $200,000  to  put  into  securities,  he  might  have  dis- 
tributed his  purchases  in  about  the  following  proportions  : 
10  per  cent  in  Government  or  Municipal  issues;  20  per 
cent  in  railroad  bonds ;  20  per  cent  in  railroad  stocks ; 
10  per  cent  in  public  utility  bonds ;  10  per  cent  in  public 
utility  stocks ;  10  per  cent  in  industrial  bonds ;  10  per  cent 
in  industrial  stocks ;  10  per  cent  in  bank  or  trust  com- 
pany stocks. 

Following  this  plan,  and  taking  into  consideration  all 
the  principles  for  investment  selection  which  we  have 
been  outlining,  a  result  as  follows  might  have  been  ob- 
tained : 


Government  Issues: 


Cost  Yield  Value  Yield 

July  1,  per  July  1,  per 

1908  Annum  1912  Annum 

$5,000  Japanese  Ster.  4}s,  due  1925...      $4,450  $225  $4,600  $225 

5,000  Chicago  Wor.,  Fr.  4s,  due  1921.        5,000  200  5,000  200 

5,000   Seattle  City  4s,  due  1925 4,850  200  4,900  200 

5,000  Berlin  Sis,  op.  after  1909 4,600  175  4,650  175 


Railroad  Bonds: 

$5,000  Atch.  East  Okla.  4s,  due  1928.. 

4,800 

200 

4,800 

200 

5,000  B.    &   O.    P.    Jc.    &   M.    D.    Sis, 

due  1925    

4,150 

175 

4,400 

175 

5,000  C.  R.  I.  &  Pcf.  ref.  4s,  due  1934 

4,250 

200 

4,500 

200 

5,000  Col.  &  So.   4s,  due  1929  

4,500 

200 

4,850 

200 

5,000  Oreg.  Sh.  Line  ref.  4s,  due  1929 

4,450 

200 

4,725 

200 

5,000  Reading-J.  Cent.  4s,  due  1951.. 

4,700 

200 

4,900 

200 

5,000  Long  Island  gen.  4s,  due  1938.. 

4,500 

200 

4,700 

200 

5,000  Lake  Shore  deb.   4s,  due  1928.. 

4,550 

200 

4,700 

200 

Railroad  Stocks: 

$5,000  Atchison  preferred    (5%)  

4,550 

250 

5,175 

250 

5,000  Norf.  &  West.  pfd.   (4%) 

4,000 

200 

4,600 

200 

5,000  Reading  first  pfd.   (4%)  

4,100 

200 

4,550 

200 

5,000  Union  Pac.  pfd.  (4%)  

4,150 

200 

4,600 

200 

4,050 

275 

5,450 

300 

5,000  Baltimore  &  Ohio  common  

4,300 

300 

5,337 

300 

5,000  Canadian    Pacific    

8,000 

350 

11,950 

50d 

5,000  Union   Pacific  common  

7,100 

BOO 

8,600 

500 

78 


How  to  Invest   Money  Wisely 


Public  Utility  Bonds: 

Cost 
July  1. 

Yield 
per 

Value 
July  1, 

Yield 
per 

1908 

Annum 

1912 

Annum 

|5,000  Detroit  City  Gas  5s,  due  1923.. 

4,900 

250 

5,050 

26o 

5,000  Am.    Tel.    &    Tel.    coll.    4s,    due 

1929  

4,300 

200 

4  550 

200 

5,000  Houghton    Co.    St.    Ry.    5s,    due 

1920  

4,500 

250 

4,825 

250 

5,000  Portland  (O.)   1st  and  ref.  5s.. 

4,650 

250 

5^000 

250 

Public  Utility  Stocks: 

$5,000  Am.   Light  &  Traction  pfd  

4,700 

300 

5,400 

300 

5,000  Laclede   Gas   pfd. 

3,750 

250 

4,900 

250 

5,000  General    Elec     common 

6,500 

400 

8,300 

400 

5,000  Minneapolis   Gen.   Elec.   pfd  

5,000 

300 

5^350 

300 

Industrial  Bonds: 

$5,000  du  Pont  Powder  44s,  due  1936. 

3,850 

225 

4,550 

225 

5,000  U.    S.    Realtv    &    Imp.    5s,    due 

1924  

4,000 

250 

4,450 

250 

5,000  U.  S.  Steel  Corp.  5s,  due  1963. 

4,850 

250 

5,150 

250 

5,000  Fairmont  Coal  5s,  due  1931  

4,550 

250 

4,850 

250 

Industrial  Stocks: 

$5,000    U.   S.   Steel  pfd 5,100 

5,000  Inter.    Harvester    pfd 5,050 

5,000  Virginia    Chem.    pfd 4,950 

5,000  Am.  Car  &  Foundry  pfd 4,850 

Bank  and  Trust  Company  Stocks: 

$2,000   (par)   Astor   Trust    (X.    Y.) 5,800 

2,000   (par)   Equitable  Tr.    (X.  Y.) .  .  .  7,300 

2,000   (par)   First  Xat.   Bk.  (Chicago).  7,600 

2,000   (par)    Shawmut   Bk.    (Boston)..  5,800 


350  5,600  350 

350  6,050  350 

400  6,000  400 

350  5,800  350 


320 
240 
360 


7,200 

11,000 

8,920 

8,800 


160 
480 
320 
360 


Totals $197,050     $10,195     $228,732     $10,770 


Here  we  find  an  investment  scheme  for  about  $200,000 
which  meets  every  test  as  far  as  wide  distribution  is  con- 
cerned ;  measures  up  to  exacting  conditions  as  to  security ; 
yielded  at  the  start  a  very  substantial  return  on  the  invest- 
ment, etc.  The  diversification  is  a  wide  one,  as  it  is  di- 


Distribution  and  Profit  Combined  79 

vided  between  five  distinct  classes  of  investment  issues ; 
these  classes  are  sub-divided  into  proper  proportions  of 
bonds  and  stocks ;  and  the  different  issues  themselves  have 
in  nearly  all  cases  been  selected  because  of  their  independ- 
ent and  individual  characteristics  of  strength.  In  the 
government  issues,  the  risk  is  spread  into  different  coun- 
tries, and  those  confined  to  the  United  States  are  sepa- 
rated widely  in  a  geographical  sense;  the  railroad  bonds 
in  every  case,  are  of  separate  systems,  and  are  widely 
distributed  ;  this  is  also  largely  true  of  the  railroad  stocks ; 
the  public  utility  issues  are  divided  properly  between  gas, 
electric  light,  street  railway  and  telephone  companies ;  the 
industrial  issues  represent  widely  diversified  undertakings, 
etc. ;  while  the  bank  stocks  are  selected  from  great  com- 
mercial centers  like  New  York,  Chicago  and  Boston. 

With  this  wide  selection,  the  risk  of  loss  has  been  re- 
duced to  a  minimum,  while  the  investor  has  been  put  in 
position  where  he  can,  to  some  extent,  get  the  benefit  of 
favorable  developments  in  a  wide  field  of  human  activity. 
Selected  at  a  season  when  all  well-tested  securities  were 
reasonably  cheap,  it  will  be  noted  that  the  results  attained 
have  been  most  satisfactory.  Not  only  has  the  aggregate 
principal  appreciated  from  $197,050  to  $228,732,  but  the 
income,  which  was  $10,195,  or  over  5  per  cent  at  the 
time  of  purchase,  has  increased  to  $10,770,  which  is 
equal  to  nearly  5^  per  cent  on  the  original  cost,  or  4% 
per  cent  on  the  present  value.  In  addition  within  this 
four  year  period  "rights"  have  twice  been  given  to  Can- 
adian Pacific  stockholders. 

How  much  more  satisfactory  is  an  investment  plan  of 


80  How  to  Invest  Money  Wisely 

this  kind,  than  one  where  the  investor  confines  himself 
entirely  to  "savings  bank"  issues  or  other  so-called  long 
term  "high-grade  bonds."  We  have  already  pointed  out 
in  previous  chapters  how  unsatisfactory  have  been  results 
where  investors  have  made  no  intelligent  efforts  at  dis- 
ribution,  and  have  shown  that  during  the  past  decade, 
very  heavy  losses  in  principal  have  been  thus  experienced. 
While  the  foregoing  exhibit  is  in  the  nature  of  a  "past 
performance,"  it  is  fully  as  true  today  that  scientific  dis- 
tribution plans  can  be  worked  out  for  the  future;  and 
in  later  chapters  I  shall  attempt  to  present  some  concrete 
suggestions  along  this  line. 


XI 

Plans  for  Investment  of  Moderate  Sums 

IN  the  last  chapter  I  went  into  a  somewhat  extended 
discussion  of  the  proper  methods  for  so  diversify- 
ing investment  lists,  and  so  selecting  certain  types 
of  investments  as  to  insure  the  entire  safety  of  the 
principal  sum,  and  also  to  take  advantage,  within  reason, 
of  appreciation  in  market  values,  and  increases  in  divi- 
dend returns.  An  elaborate  example  was  presented  of 
an  investment  scheme  covering  about  $200,000,  which,  if 
carried  out  four  years  ago,  would  in  the  meanwhile  have 
added  about  15  per  cent  to  the  investor's  total  principal 
and  also  increased  his  interest  and  dividend  yield  ma- 
terially. 

I  will  now  present  several  plans  for  proper  investment 
diversification,  for  moderate  sums,  with  the  same  ends  in 
view,  viz.,  to  insure  security  of  principal  as  a  first  con- 
sideration ;  to  offset  the  effects  of  possible  depreciation  of 
principal  as  a  second  consideration ;  and  to  benefit  in  the 
future  by  possible  appreciation  of  principal  and  enlarged 
dividend  yield. 

Of  course,  the  fact  must  not  be  overlooked  that  there 
are  seasons  when  it  is  usually  unwise  to  do  much  new  in- 
vesting of  any  type,  just  as  there  are  other  periods  when 

(81) 


82  How  to  Invest  Money  Wisely 

a  general  overhauling  of  investment  lists  is  most  advisa- 
ble. The  present  time  cannot  be  said  to  be  absolutely 
ideal  in  either  respect,  but  nevertheless  it  is  much  better 
than  that  in  the  end  of  1909.  As  far  as  pure  bond  in- 
vestments are  concerned,  the  present  period  is  probably 
about  as  good  as  any  that  we  are  likely  to  have  within 
the  next  two  or  three  years,  provided  intelligent  selections 
are  made.  In  the  stock  investment  field,  the  opportuni- 
ties are  fair  today,  although  of  course,  not  of  the  very 
best. 

1.  Suggested  plan  for  the  investment  of  $10,000,  in- 
tegrity of  principal  being  the  exclusive  consideration. 

An  investment  of  this  kind  might  wisely  be  divided  be- 
tween railroad  bonds,  public  utility  bonds  and  industrial 
bonds,  as  follows :  Price  of 

Sept.,  1912  Cost 

$2,000  Oregon  Short  Line  ref.  4s,  due  1929... at  92  $1,840 

2,000  Seaboard  Air  Line  first  4s,  due  1950... at  86  1,720 

2,000  Lake  Shore  deben.  4s,  due  1928 at  92^  1,850 

2,000  Amer.  Tel.  &  Tel.  col.  4s,  due  1920... at  90  1,800 

2,000  du    Pont   Powder,   4^s,   due   1936 at  88  1,760 

The  above  arrangement  would  yield  an  income  of  $410 
per  year  on  a  net  investment  of  $8,970.  All  of  the  bonds 
except  one  have  comparatively  nearby  maturities,  and, 
regardless  of  fluctuations  in  the  general  market  interest 
rate,  should  easily  enough  hold  their  present  value,  and 
in  time  work  up  to  par.  The  Seaboard  Air  Line  first 
4s  may  be  called  at  par  at  any  time,  and  most  likely  will 
be  within  the  next  five  years.  The  du  Pont  Powder  bonds 
can  be  called  at  110. 

Having  made  the  above  selections  the  investor  would 


Investment  of  Moderate  Sums  83 

still  have  cash  left  over  of  $1,030,  which  could  be  em- 
ployed in  buying  another  bond  of  slightly  more  specu- 
lative value,  if  desired,  or  put  into  a  strong  dividend 
paying  stock.  In  any  event,  if  the  above  list  were  held 
until  maturity  there  would  surely  be  an  appreciation  in 
principal  of  $1,030  on  the  ten  bonds  listed  above,  and 
the  extra  bond  or  stock  purchase  could  be  regarded  as 
the  investment  of  a  "potential  profit." 

2.  Suggested  plan  for  the  investment  of  $25,000,  in- 
tegrity of  principal  being  the  first  consideration,  but  a 
desire  for  a  larger  income  yield,  and  fair  possibilities  of 
appreciation  also  being  considered. 

A  sum  invested  under  these  conditions  might  wisely  be 
distributed  at  the  present  time  as  follows : 

Railroad  Bonds:  Sejt^ma  Cost 

$3,000  Rio  Grande  Western  1st  4s  due  1939.. at     83  $2,490 

3,000  Long  Island  R.  R.  cons.  4s,  due  1931.. at     95  2,850 

Railroad  Stocks: 

$3,000  Northern  Pac.  stock  (7%) at  126  $3,780 

3,000  Baltimore   &   Ohio   stock    (6%) at  108  3,240 

Public  Utility  Bonds: 

$3,000  Cal.  Gas  &  El.  ref.  5s,  due  1937 at     96  $2,880 

3,000  N.  Y.  Gas  &  El.  H.  &  P.  4s,  due  1949. at    88  2,640 

Industrial  Bonds: 

$3,000  U.  S.  Realty  &  Imp.  5s,  due at    90  $2,700 

3,000  Armour  Real  Estate  4^s,  due at    91  2,730 

1,000  Fairmont  Coal  5s,  due  1931 at    96  960 

Here  would  be  a  list  with  a  par  value  of  $25,000 — cost- 
ing in  all  $24,270,  and  yielding  $1,235  per  annum.  The 
list,  it  will  be  noted,  is  well  distributed  and  the  issues  are 
such  that  the  investor  could  feel  entirely  secure  for  an  in- 


84  How  to  Invest  Money  Wisely 

definite  period.  The  bond  issues  would  ultimately  work 
to  their  par  values,  while  he  would  have  a  moderate  inter- 
est in  possible  appreciation  in  the  future  of  some  of  his 
principal  through  his  holdings  of  Northern  Pacific  and 
Baltimore  &  Ohio.  The  remaining  balance  of  $730  could 
be  put  into  either  a  bond  with  some  possibilities  of  appre- 
ciation, or  invested  in  a  few  shares  of  a  good  railroad  or 
public  utility  stock. 

Probably  no  more  satisfactory  scheme  for  the  invest- 
ment of  this  sum  of  money  could  be  devised  for  the  or- 
dinary investor  who  is  dependent  on  income. 

3.  Suggested  plan  for  investment  of  $50,000,  strength 
of  principal  of  course  being  a  prime  consideration,  but 
possible  appreciation  also  being  quite  fully  considered. 

Railroad  Bonds:  Price  of 

Sept.,  1912  Cost 

$5,000  Baltimore  &  Ohio  3^s,  due  1925 at     92  $4,600 

5,000  St.  Louis  &  San  Fran.  gen.  5s,  due  1927. at     85  4,250 

Railroad  Stocks: 

S.-..IMH)  Northern    Pacific    (7%) at   1:2*  $6,400 

5,000  Kansas  City  So.  pfd.  (4%) at     60  3.000 

Public  Utility  Bonds: 

$5,000  Houghton  Co.  St.  Ry.  5s,  of  r.»20 at     '.»f,  $4,800 

5,000  Kansas  City  (Mo.)  Gas  5s,  due  1925.. at     i»7  4,850 

Industrial  Bonds: 

$5,000  Westinghouse    Mfg.    5s.    due    1931 at     95  $4,750 

5,000  Republic  Iron  &  Steel  5s,  of  1940 at     91  4.550 

:,.000  Bush   Terminal   5s,   due at     97  4,850 

Industrial  Stocks 

J5,000  Amer.  Beet  Sugar  preferred   (6%)... at     !»8  $4,900 

3,000  Railway    Steel    Spring,    pfrl.    (7%)....a1    100  3,000 


Investment  of   Moderate   Sums 


The  above  list  embraces  $53,000  in  par  value  of  securi- 
ties, which  would  cost  at  the  present  market  quotations, 
about  $49,950.  The  total  yield  on  this  investment  would 
be  $2,735  per  annum,  or  considerably  over  S%.  Of 
course,  there  is  a  slight  speculative  element  to  some  of 
these  issues,  but  they  are  exceedingly  well  distributed  ; 
the  bonds  are  nearly  all  of  short  maturities  and  the  stocks 
have  large  potential  as  well  as  actual  asset  values. 


XII 

Plans  for  Investing  Larger  Sums 

THE  general  principles  which  we  have  been  laying 
down  in  these  chapters  for  intelligent  investment 
selection  and  distribution,  can  of  course  be  ap- 
plied in  many  ways  and  for  both  large  and  small  sums  of 
money.  Many  investors  prefer  to  take  a  little  more  risk 
than  do  others  in  the  attempt  to  diversify  their  principal. 
The  desire  to  place  oneself  in  a  position  where  the  bene- 
fits of  possible  growth  in  values  will  be  at  least  partially 
received,  is  very  strong.  The  man  who  has  a  consider- 
able capital  can  of  course  afford  to  take  this  additional 
risk  far  more  easily  than  can  one  with  limited  funds. 
It  is  usually  a  mistake  for  an  investor  whose  capital  is 
much  under  $25,000  or  $30,000  to  invest  any  part  of  his 
principal,  even  in  moderate  degree,  with  a  view  of  seeking 
chiefly  the  benefits  of  unusual  appreciation,  but  where  a 
man  has  $100,000  or  more,  he  can  sometimes  justly  give 
a  little  more  attention  to  possibilities  of  profit  on  his  in- 
vestment without  going  into  the  field  of  speculation  to 
too  great  an  extent.  On  page  88  I  suggest  a  plan  for  a 
sum  of  this  amount: 

(87) 


How  to   Invest   Money   Wisely 


Suggested  plan  for  the  investment  of  a  principal  sum 
of  $100,000,  diversification  being  the  primary  object,  but 
possibilities  of  appreciation  being  considered  also. 

Prices  of 

1.  Government  Issues:  Sept.,  1912     Cost 

$5,000  Japanese  Imperial  4*/jS,  due  1925 at     92        $4.600 

5,000  New  York  City  (new)  4*4s at  101          5.050 

2.  Railroad  Bonds: 

$10,000  Rio  Grande  Western  first  4s,  due  l  <):;<»  at     s:;        $8.300 
10,000  Kanawha  &  Michigan  second  5s,  due 

1927    at     97  9.700 

3.  Railroad  Stocks: 

$10,000  (100    shares)     Norfolk    &    Western 

(6%)    common    at  .116         11,600 

10,000  (100  shares)  Northern  Pacific  (7%  )  at   !:><;         12,600 

4.  Public  Utility  Bonds: 

$5,000  Virginia  Ry.  &  Power  5s,  due  19:54...  at     %  4.800 

5.000  Portland    (Oreg.)    Ry.    first    and    ref. 

5s,  due  1930 at     98  4,950 

5.  Industrial  Bonds: 

$5,000  Corn  Products  5s,  due  1934 at  96  4,800 

5,000  United  States  Realty  5s,  due  1<K>4 at  90  4,500 

5,000  Westinghouse  5s,  due  1931 at  9.1  4,750 

5,000  Republic  Iron  &  Steel  5s.  clue  1940 at  91  4,550 

G.  Industrial  Stocks: 

$10,000  (100   shares)    Railway    Steel    Spring 

pfd.   (7%)    ' at  100  10,000 

10,000  (100  shares)   Amer.  Beet  Sugar  pfd. 

(6%)    at  98  9,800 

Total $100.000 

While  there  is  a  moderate  speculative  element  to  be 
found  in  parts  of  the  above  list,  yet  as  a  whole  the  issues 
are  to  be  regarded  as  fairly  high  grade,  and  the  chances 


Plans  for  Investing  Larger  Sums  S!) 

of  growth  in  values  are  very  good,  as  the  following  com- 
ments will  indicate. 

1.  Government  Issues:    Both  of  these  issues  are  en- 
tirely secure.     The  credit  of  the  Japanese  government 
lias  been   steadily   improving  since  the  Russo-Japanese 
war,  and  these  bonds,  which  are  thoroughly  protected  in 
every  way,  should  gradually  work  towards  their  par  value 
within  the  next  ten  years.    It  will  be  noted  that  they  now 
have  but  thirteen  years  to  run.    The  New  York  City  is- 
sue, of  course,  stands  on  a  high  investment  plane. 

2.  Railroad  Bonds:     The  Rio  Grande  Western  first 
4s,  clue  1939,  are  an  absolute  first  lien  on  the  main  lines 
of  the  Denver  &  Rio  Grande  system  from  Crevasse,  Col., 
to  Ogden,  Utah.     This  line  has  great  strategical  value, 
passing  through  Salt  Lake  City,  and  forming  the  connec- 
tion of  the  original  Denver  &  Rio  Grande  Railroad  with 
the  Western  Pacific,  the  Southern  Pacific  and  the  Ore- 
gon Lines  of  the  Union  Pacific  system.     The  bonds  are 
followed  by  two  junior  liens.    The  Kanawha  &  Michigan 
second  5s  have  only  fifteen  years  to  run,  and  the  earn- 
ings of  the  road  give  the  issue  a  margin  of  safety  of  70 
per  cent.     I  regard  both  of  these  bonds  as  "high-grade" 
and  believe  they  will  tend  to  rise  considerably  in  value 
during  the  next  few  years. 

3.  Railroad  Stocks:    The  future  outlook  of  Norfolk 
&  Western  is  most   favorable.     The  common  stock  is 
rapidly  becoming  a  prime  investment  issue,  and  in  the 
course  of  a  few  years  should  be  raised  to  a  still  higher 
dividend  basis.     As  for  Northern  Pacific,  I  think  it  is 


90  How  to  Invest  Money  Wisely 

probably  as  sure  of  maintaining  its  7  per  cent,  dividend  as 
is  Chicago  &  North  Western,  which  sells  fifteen  points 
higher.  It  is  an  attractive  investment  of  its  class. 

4.  Public  Utility  Bonds:     While  not  of  the  highest 
grade,  the  Virginia  Railway  &  Power  5s,  due  1934,  are 
excellently    secured,   and    the    equity   back   of    them    is 
steadily  growing.     They  have  but  twenty-two  years  to 
run,   which   is   an   argument   in   their    favor.      Portland 
Railway  refunding  5s  are  really  a  very  strong  bond. 

5.  Industrial  Bonds:     Each  of  the  issues  included  in 
this  classification  has   features  of  strength  to  commend 
it.     They  are  all  of  relatively  short  maturities,  return  a 
large   yield,   and    are   protected    by    liberal    margins    of 
safety. 

6.  Industrial  Stocks:     The  two  industrial  preferred 
stocks  included  above  seem  most  attractive  investments 
of  this  type.     Railway  Steel  Spring  preferred  should,  in 
the  course  of  a  few  years,  sell  nearly  as  high  as  United 
States  Steel  preferred,  while  American  Beet  Sugar  pre- 
ferred is  one  of  the  prime  6  per  cent,  preferred  indus- 
trials. 

This  investment  scheme,  at  recent  market  prices, 
would  amount  to  $100,000,  and  the  straight  yield  on  the 
money  would  be  $5,337.50  or  5^  per  cent,  on  the  cost. 
It  will  be  noted  that  the  proper  precautions  in  the  matter 
of  selecting  issues  of  widely  different  geographical  loca- 
tions and  separate  managements,  have  been  strictly  ad- 
hered to.  Of  the  government  issues,  one  is  dependent 


Plans  for  Investing  Larger  Sums  91 

on  the  prosperity  of  a  foreign  nation,  and  the  other  on 
the  prosperity  of  the  chief  American  city ;  the  railroad 
bonds  and  stocks  are  widely  distributed;  the  same  thing 
is  true  of  the  public  utility  bonds.  Of  the  industrial 
bonds  and  stocks,  each  issue  is  on  a  distinct  property  and 
in  a  distinct  line  of  industry.  Further  than  this,  the 
possibility  of  profit  in  the  principal  is  not  merely  depend- 
ent on  a  trade  or  industrial  boom.  Profits  will  accrue 
in  time,  on  the  bond  issues,  simply  because  none  of  them 
are  a  great  many  years  from  the  date  of  maturity,  and 
they  are  nearly  all  selling  today  below  their  face  values. 
Whether  we  have  a  boom  or  a  depression,  the  position  of 
these  issues  should  tend  to  improve.  The  stock  issues, 
on  the  other  hand,  are  all  more  responsive  to  trade  con- 
ditions, but  as  they  are  well  spread  throughout  the  coun- 
try and  all  dependent  on  different  influences,  the  chances 
of  all  of  them  being  equally  affected  in  the  event  of  a 
depression  are  very  remote. 

There  are  many  investors  of  considerable  means,  who, 
while  they  of  course  do  not  forget  the  importance  of 
thoroughly  protecting  their  principal,  are  willing  to  put 
at  least  a  portion  of  their  capital  in  semi-speculative  is- 
sues. They  do  not  want  to  "speculate"  in  the  ordinary 
sense  of  the  term,  and  are  far  from  wishing  to  buy  secu- 
rities on  margin.  But  what  interests  them  is  some  method 
whereby  they  can  get  substantial  benefit  from  a  general 
upward  swing  in  prices. 

In  the  following  exhibit  I  have  attempted  to  suggest 
a  plan  whereby  a  fund  of  about  $100,000  can  be  safely 
distributed  among  various  issues  which  appear,  for  spe- 


1'li  How  to  Invest   Money  Wisely 

cial  reasons,  to  be  cheap  at  the  present  time,  and  to  have 
good  possibilities  of  increases  in  value  in  the  next  "bull" 
movement. 

Suggested   plan   for  a   ''semi-speculative"    investment 
scheme,  with  a  capital  sum  of  $100,000. 

Prices  of 

1.  Railroad  Bonds:  Sept.,  1912     Cost 

$10,000  St.  Louis  &  San  Francisco  gen.  lien 

5s,  due   1927 at     85        $8,500 

10,000  St.    Louis,    Iron    Mountain    &    So., 

Unif.  and  Ref.  4s,  due  1929 at     78          7,800 

2.  Railroad  Stocks: 

$10,000  (100  shares)  Southern  Pacific  (6%)  at  112        11,200 
10,000  (100   shares)    Kansas    City   So.    pfd. 

(4%) at     60          6,000 

3.  Public  Utility  Stocks: 

$10,000  (100  shares)    Brooklyn  Rapid  Tran- 
sit   (5%)    at     91          9,100 

10,000  (100  shares)  Consolidated  Gas  (6%)  at  145        14,500 

4.  Public  Utility  Bonds: 

$10,000  Inter-Metropolitan  4^s,  due  1956 at     82          8,200 

5.  Industrial  Bonds: 

$10,000  Colorado  Industrial  5s,  due  1924.... at     82          8.200 
10,000  Distillers  Securities  5s,  due  1927 at     75          7,500 

6.  Industrial  Stocks: 

$10,000(100  shares)    International  Har.  com. 

(5%)    at  120        12,000 

10,000  (100    shares)     Amer.    Malting    pfd. 

(4%)    at     65  6,500 


Total $99.500 

As  in  the  case  of  the  first  exhibit,  full  consideration  is 
given  to  the  matter  of  sound  investment  diversification. 


Plans  for  Investing  Larger  Sums  93 

and  no  very  large  portion  of  the  total  sum  is  placed  in 
any  one  issue  or  in  any  one  type  of  security.  That  all 
of  these  issues  have  their  special  features  of  attractive- 
ness is  shown  by  the  following  comments. 

1.  Railroad  Bonds:    The  St.  Louis  &  San  Francisco 
general  lien  5s,  due  1927,  are  admittedly  a  "semi-invest- 
ment" issue,  but  they  are  much  stronger  in  position  than 
was  the  case  a  couple  of  years  ago,  when  they  were  sel- 
ling above  90.     The  system  has  been  making  unusual 
progress  on  its  physical  side  during  the  past  eighteen 
months,  and  its  outlook  to-day  is  most  favorable.   These 
bonds  are  protected  by  a  good  margin  of  safety,  the 
yield  on  the  cost  is  a  handsome  one,  and  they  have  only 
fifteen  years  to  run.    The  unifying  and  refunding  4s  of 
the  St.  Louis,  Iron  Mountain  &  Southern  are  secured  on 
some  of  the  best  mileage  in  the  general  system,  and  now 
that  plans  have  been  arranged  for  providing  for  all  future 
financing  on  this  road,  the  position  of  these  bonds  should 
gradually  improve.    As  they  mature  in  1929,  the  present 
low  price  makes  them  attractive. 

2.  Railroad  Stocks:    Southern  Pacific,  in  spite  of  its 
setbacks  in  earnings  during  the  past  year,  still  has  great 
possibilities,  and  the  crop  outlook  in  its  territory  this  year 
is  unusually  favorable.     If  we  have  any  "bull"  move- 
ment the  coming  winter,  this  stock  should  rise  substan- 
tially.   The  investment  position  of  Kansas  City  Southern 
while  not  of  the  highest,  gives  assurance  of  permanent 
dividend  disbursements. 


94  How  to  Invest  Money  Wisely 

3.  Public    Utility    Stocks:      That    Brooklyn    Rapid 
Transit  will  gradually  work  higher,  now  that  the  subway 
situation  has  been  settled,  seems  a  foregone  conclusion. 
Consolidated   Gas,   in  spite  of  its  rise  of  the  past  two 
years,  should  continue  to  be  benefited  by  the  growth  of 
New   York   City,   and   increase   its   profits   steadily   for 
many  years  to  come. 

4.  Public  Utility  Bonds:    I  regard  the  Interborough- 
Metropolitan  4^2 s  as  a  very  cheap  bond  of  this  type, 
and  as  the  credit  of  the  company  improves   (as  it  will 
during  the  coming  few  years)  these  bonds  should  steadily 
work  up  towards  90. 

5.  Industrial  Bonds:    The  Colorado  Industrial  5s  are 
of  course  "semi-speculative"  or  they  would  not  be  selling 
at  so  low  a  figure.     But  nevertheless  the  fact  must  not 
be  overlooked  that  the  property  back  of  the  issue  is  of 
great  value,  and  any  real  boom  in  the  iron  and  steel  trade 
will  tend  to  force  these  bonds  up  further  in  price.     Dis- 
tillers Securities  5s  I  regard  as  attractive  at  the  price. 
In  the  poorest  years  the  interest  on  the  issue  has  always 
been  easily  earned,  and  the  added  and  growing  equity  in 
the  U.  S.  Industrial  Alcohol  Company  will  benefit  this 
company  materially  during  the  next  few  years. 

6.  Industrial  Stocks:    In  this  classification  I  have  se- 
lected International  Harvester,  in  spite  of  its  high  price, 
because  of  the  fact  that  if  the  company  is  forced  to  dis- 
solve, we  are  likely  to  see  a  further  material  apprecia- 
tion in  the  price.     American  Malting  preferred  I  con- 


Plans  for  Investing  Larger  Sums  95 

sider  still  cheap  as  a  speculative  investment.  There  are 
about  20  per  cent,  in  accumulated  dividends  which  must 
sooner  or  later  be  paid,  and  the  asset  value  of  the  stock 
is  well  above  $75  per  share,  regardless  of  these  dividends. 
The  total  cost  of  the  purchases,  at  recent  prices,  in 
this  list  would  be  $99,500,  and  the  annual  yield  would 
amount  to  $5,350,  or  over  5^  per  cent.,  independently  of 
any  appreciation.  Of  course,  the  chances  of  profit  are 
greater  in  this  list  than  in  the  other,  but  naturally  the 
speculative  risk  is  greater.  At  the  same  time,  the  list 
is  so  worked  out  that  the  ordinary  dangers  are  reduced 
to  a  minimum. 


PART  THREE 
CLASSES  OF  INVESTMENTS 


XIII 

Some  Typical  Industrial  Bonds 

IN  selecting  industrial  bonds  for  investment,  the  diffi- 
culties are  generally  far  greater  than  in  the  case  of 
either  steam  railroad  or  public  utility  issues.     In 
the  latter  cases  it  is  usually  a  simple  matter  to  ascertain 
the  character  of  the  property  which  really  stands  back  of 
the  issue,  but  in  the  case  of  the  ordinary  industrial  bond 
this  is  not  so  often  possible.     Reports  of  industrial  cor- 
porations are  frequently  too  brief  and  unsatisfactory,  as 
full  descriptions  of  property  and  assets  are  not  generally 
presented  to  the  stock  or  bond  holders. 

In  a  very  real  sense,  then,  the  strength  and  position  of 
an  industrial  bond  depends  on  the  revealed  earning  power 
of  the  business  itself;  and  the  question  of  stability  and 
permanence  in  this  earning  power  takes  on  great  impor- 
tance. A  public  utility  bond  is  often  secure  simply  be- 
cause of  the  franchise  value  or  location,  and  the  margin 
of  safety  in  earnings  is  the  only  vital  thing.  But  fran- 
chise values  do  not  apply  as  a  general  thing  to  industrials 
and  benefits  due  to  location  and  environment  are  not 
always  of  such  great  importance.  The  really  vital  point 
for  the  investor  to  ascertain  is  the  profit  producing 
power,  and  the  things  which  are  related  to  this,  such  as 

(99) 


100  How  to  Invest  Money  Wisely 

the  character  of  management,  business  policy,  stability 
of  markets,  etc. 

On  the  following  pages  I  present  brief  records  of 
twenty-six  typical  industrial  bonds  which  are  well  known 
in  the  New  York  market.  It  will  be  noted  that  as  a 
general  thing  the  yield  is  in  excess  of  5%  and  some  is- 
sues yield  at  current  prices  over  6%.  Thus,  while  the 
better  grade  of  steam  railroad  issues  usually  return  from 
4  to  4y2%  to  the  investor,  and  public  utilities  from  4l/2 
to  5l/i%,  the  same  general  classes  of  industrials  enable 
the  holder  to  secure  a  return  of  from  5  to  6%.  It  does 
not  necessarily  follow,  however,  that  an  industrial  issue 
returning  Sy2%  is  a  weaker  bond  than  some  public  util- 
ity which  yields  5%,  or  some  railroad  bond  which  yields 
but  4^4%.  There  are  many  industrial  issues  with  very 
heavy  assets  back  of  them,  and  protected  by  very  high 
margins  of  safety,  which  yield  5%%  or  more  on  the  in- 
vestment. Some  of  those  listed  below  are  in  this  class. 

Adams  Express  Company  collateral  debenture  4s ; 
dated  March  1,  1898;  due  March  1,  1948.  Outstanding 
$12,000,000.  These  bonds  are  not  a  mortgage  but  are 
secured  by  deposit  of  income-producing  bonds  of  rail- 
roads and  other  companies,  the  par  and  market  values  of 
which  are  in  excess  of  the  issue.  The  net  earnings  in 
recent  years  of  the  Adams  Express  Company  have  been 
from  four  to  six  times  the  amount  of  its  total  fixed 
charges.  In  event  of  liquidation  these  bonds  would 
surely  receive  their  face  value.  At  the  recent  price  of 
H4  they  yield,  if  held  to  maturity,  nearly  5%  on  the 
money. 


Some  Typical  Industrial  :  Boras'  AJ01 

American  Agricultural  Chemical  Company  first  mort- 
gage convertible  5s;  dated  October  1,  1908;  due  October 
1,  1928.  Outstanding,  $10,579,000.  Convertible  at  hold- 
er's option  into  preferred  stock,  .at  any  time.  Sinking 
fund  will  retire  bulk  of  issue  by  maturity.  Recent  net 
profits  of  the  company  have  averaged  seven  times  tlu- 
interest  requirement.  A  very  attractive  investment  at 
present  price  of  101.  yielding  4.92%. 

American  Cotton  Oil  Company  20-year  5s,  dated  May 
1,  1911;  due  May  1,  1931.  Outstanding,  $5,000,000. 
Callable  at  105.  These  bonds  are  somewhat  speculative 
and  not  secured  by  mortgage,  but  the  average  earnings 
for  a  series  of  years  show  charges  earned  several  times 
over.  The  yield  at  the  present  price  of  94  is  about 


American  Writing  Paper  Company  first  5s,  dated 
July  1,  1899;  due  July  1,  1919.  Outstanding,  $13,904,000. 
Sinking  fund  of  $100,000  per  annum  tends  to  strengthen 
this  issue  as  it  nears  maturity.  While  not  in  the  strong 
investment  class,  the  bonds  appear  reasonably  cheap  at 
the  present  price  of  90,  the  yield  being  6.80%  per  annum. 
This  high  yield  is  due  to  the  approaching  maturity. 

Armour  &  Co.  real  estate  mortgage  4^s,  dated  June 
1,  1909;  due  June  1,  1939.  Outstanding,  $30,000,000. 
This  is  a  very  high  grade  bond,  being  protected  by  valu- 
able real  estate  and  a  heavy  earning  power.  Even  in 
the  poor  year,  1911,  the  interest  was  earned  five  times 
over.  At  the  present  price  of  9\l/2  the  yield  is  5.05%. 


102  Hovv  'to  Invest  Money  Wisely 

Bethlehem  Steel  Company  first  extension  mortgage  5s, 
dated  January  2,  1906;  due  January  1,  1926.  Outstand- 
ing, $8,000,000.  Callable  at  105.  These  bonds  are  well 
secured,  although  subject  to  a  prior  mortgage  on  a  por- 
tion of  the  property.  The  net  profits  of  the  company 
were  in  1911  several  times  the  interest  requirement  on 
this  and  the  prior  issue.  At  the  present  price  of  97  the 
yield  is  about  5.30%. 

Central  Leather  Company  first  lien  20-year  5s,  dated 
April  1,  1905;  due  April  1,  1925.  Outstanding,  $36,764,- 
150.  The  issue  is  secured  by  direct  or  collateral  mort- 
gage on  all  the  properties  of  the  company,  and  after 
1913,  when  about  $3,400,000  debentures  are  retired,  it 
will  be  the  only  bond  issue  on  the  property.  The  earn- 
ings of  the  Central  Leather  Company  fluctuate  radically, 
but  the  assets  back  of  these  bonds  seem  to  justify  a 
favorable  opinion  regarding  them.  At  the  present  price 
of  95  the  yield  is  about  5.55%. 

Colorado  Fuel  &  Iron  Company  general  mortgage  5s, 
dated  February  1,  1893;  due  February  1,  1943.  Out- 
standing, $5,558,000.  Callable  at  105.  This  is  a  direct 
obligation  of  the  company,  covering  the  entire  property 
by  mortgage,  subject  only  to  two  small  prior  liens  on  a 
portion.  The  value  of  the  property  covered  is  many 
times  in  excess  of  the  issue,  and  in  normal  years  the  in- 
terest on  these  bonds  has  been  earned  four  or  five  times 
over.  They  are  to  be  regarded  as  entirely  secure.  The 
current  quotation  is  100,  giving  a  yield  of  5%. 

Corn  Products  Refining  Company  first  mortgage  5s, 


Some  Typical  Industrial  Bonds  103 

dated  May  1,  1909;  due  May  1,  1934.  Outstanding, 
$5,749,000.  Callable  at  105.  Sinking  fund  retires  2% 
of  total  issue  annually.  These  bonds  are  subject  to  two 
prior  liens  on  portions  of  the  property,  but  are  them- 
selves a  direct  obligation  of  the  company  and  are  backed 
by  assets  far  in  excess  of  their  face  value.  The  earn- 
ings in  recent  years  have  usually  been  from  four  to  five 
times  the  interest  requirement.  At  the  present  price  of 
94  the  bonds  yield  5.45%  and  look  attractive. 

E.  I.  du  Pont  De  Nemours  Poivder  Company  deben- 
ture 4y2s,  dated  June  1,  1906;  due  June  1,  1936.  Call- 
able at  110.  Not  a  mortgage,  but  have  no  liens  ahead, 
and  are  protected  by  an  enormous  margin  of  safety. 
One  of  the  best  industrial  issues  in  the  market.  They 
yield,  at  the  present  price  of  90,  about 


International  Nickel  Company  30-year  sinking  fund 
5s,  dated  April  1,  1902;  due  April  1,  1932.  Outstand- 
ing, $8,162,154.  Sinking  fund  retires  $150,000  annually. 
The  property  covered  is  many  times  in  excess  of  the 
mortgage  and  the  earnings  in  recent  years  have  been 
from  seven  to  ten  times  the  interest  requirements.  An 
attractive  investment.  Price  at  present  about  100,  yield- 
ing 5%. 

International  Paper  Company  convertible  mortgage  5s, 
dated  January  3,  1905;  due  January  1,  1935.  Outstand- 
ing, $5,343,000.  Convertible  into  preferred  stock  at 
holder's  option  on  any  interest  date  prior  to  1917.  Sink- 
ing fund  retires  2%  of  issue  annually.  While  subject  to 


104  How  to  Invest  Money  Wisely 

an  underlying  bond,  this  issue  has  a  large  equity  in  the 
property  and  the  earnings  recently  have  equalled  two  and 
one-half  times  the  interest  requirement.  Although  more 
speculative  than  a  number  of  others  named,  the  bonds 
are  to  be  looked  upon  as  attractive  at  the  present  price  of 
about  91,  at  which  the  yield  is  5.! 


International  Steam  Pump  Company  first  lien  20-year 
sinking  fund  5s,  dated  September  1,  1909;  due  Septem- 
ber 1,  1929.  Outstanding,  $10,000,000.  Callable  at  103. 
Sinking  fund  will  retire  $6,000,000  prior  to  maturity. 
These  bonds  are  secured  by  direct  or  collateral  mortgage 
on  all  the  company's  property  and  should  be  regarded  as 
entirely  secure.  Earnings  in  recent  years  have  been  from 
three  to  four  times  interest  requirements.  At  the  present 
quotation  of  92  the  yield  is  about  5.75%. 

Lackazvanna  Steel  Company  first  mortgage  convertible 
5s,  dated  April  1,  1903;  due  April  1,  1923.  Outstanding, 
$15,000,000.  Convertible  into  common  stock  at  par,  at 
the  holder's  option,  at  any  time  prior  to  April  2,  1915. 
The  bonds  are  a  direct  first  or  collateral  mortgage  on  all 
the  company's  property  and  are  protected  by  a  heavy 
equity.  Earnings  in  recent  years  have  averaged  about 
seven  times  the  interest  requirement,  and  in  the  poor  year 
1911  were  three  times  the  requirement.  An  excellent 
investment  at  the  present  price  of  94y2,  the  yield  being 
about  5.70%. 

Morris  &  Co.  first  mortgage  sinking  fund  4y2s,  dated 
July  1,  1909;  due  July  1,  1939.  Outstanding,  $12,100,- 


Some  Typical  Industrial  Bonds 


000.  Callable  at  103.     Sinking  fund  will  retire  bulk  of 
issue  prior  to  maturity.     The  physical  property  back  of 
this  issue  is  well  in  excess  of  the  mortgage  and  the  earn- 
ings during  recent  years  have  been  several  times  the  in- 
terest requirement.     At  91,  the  present  price,  the  bonds 
yield  5.70%. 

National  E-nameling  &  Stamping  Co.  refunding  first 
mortgage  real  estate  5s,  dated  June  1,  1909;  due  June  1, 
1929.  Outstanding,  $3,278,000.  Sinking  fund  will  re- 
tire entire  issue  prior  to  maturity.  Although  this  busi- 
ness is  subject  to  keen  competition,  the  bonds  have  large 
assets  back  of  them,  and  the  earnings  generally  average 
from  five  to  six  times  the  interest  requirement.  At  93 
the  bonds  yield  5.65%. 

National  Tube  Company  first  mortgage  5s,  dated  May 

1,  1912;  due  May   1,   1952.     Outstanding,  $10,000,000. 
Callable  at  105  on  and  after  November  1,  1916.    Sinking 
fund  retires    \%   annually  after   May   1,    1916.     These 
bonds  stand  on  a  very  strong  investment  basis,  as  they 
are  secured  on  valuable   property   and   are   guaranteed 
principal  and  interest  by  the  United  States  Steel  Cor- 
poration.    At  991/2,  the  present  price,  the  yield  is  over 
5%. 

Otis  Elevator  Company  convertible  debenture  5s, 
dated  April  1,  1910;  due  April  1,  1920.  Outstanding, 
$3,500,000.  Convertible  into  common  stock  at  par  on 
and  after  April  1,  1913.  Callable  at  102y2  on  and  after 
April  1,  1913.  This  is  a  direct  obligation  of  the  com- 


106  How  to  Invest  Money  Wisely 

pany  and  there  are  no  mortgages  ahead  of  it.  The  earn- 
ings have  recently  averaged  about  eight  times  the  in- 
terest requirement.  At  100,  the  present  quotation,  the 
yield  is  5%. 

Railway  Steel  Springs  Company,  first  mortgage  La- 
trobe  Plant  sinking  fund  5s,  dated  January  1,  1906;  due 
January  1,  1921.  Outstanding,  $3,672,000.  Callable  at 
105.  Sinking  fund  retires  about  $135,000  per  year.  The 
bonds  are  secured  by  first  lien  on  an  extremely  valuable 
part  of  the  company's  property  and  are  protected  by  a 
very  wide  equity.  Earnings  in  recent  years  have  been 
over  six  times  all  interest  requirements.  A  very  attract- 
ive investment  issue  at  the  present  price  of  98,  yielding 
5.27%. 

Railway  Steel  Springs  Company  first  mortgage  Inter 
Ocean  Plant  sinking  fund  5s,  dated  October  1,  1911 ;  due 
October  1,  1931.  Outstanding,  $3,500,000.  Callable  at 
105.  Sinking  fund  beginning  in  1914  will  retire  about 
$125,000  per  annum.  Like  the  other  mortgage,  these 
bonds  are  protected  by  a  heavy  equity  and  liberal  mar- 
gin of  safety.  At  961/2,  which  is  the  present  quotation, 
the  return  is  about  5.25%. 

Republic  Iron  &  Steel  Co.  10-30  year  sinking  fund 
first  mortgage  5s,  dated  April  1,  1910;  due  April  1,  1940. 
Outstanding,  $11,305,000.  Sinking  fund  will  retire  all 
bonds  at  or  before  maturity.  The  replacement  value  of 
the  company's  property  is  far  in  excess  of  the  face  value 
of  these  bonds  and  there  are  no  prior  or  underlying  liens. 


Some  Typical  Industrial  Bonds  107 

Earnings  even  in  the  poorest  years  have  been  several 
times  all  interest  requirements.  An  attractive  investment 
at  93,  the  yield  being  about  5.50%. 

Union  Bag  &  Paper  Co.  first  mortgage  25-year  sinking 
fund  5s,  dated  June  28,  1905;  due  July  1,  1930.  Out- 
standing, $3,861,000.  Callable  at  105.  Sinking  fund  re- 
tires 2%  of  issue  per  annum.  This  issue  is  secured  by  a 
first  lien  on  all  the  eompany's  property,  subject  only  to 
a  small  assumed  mortgage.  The  equity  is  heavy  and 
earnings  have  recently  averaged  over  five  times  the  in- 
terest requirements.  At  the  current  price  of  about  92y2 
the  yield  is  about  5.70%. 

United  States  Realty  &  Improvement  Co.  20-year 
debenture  5s,  dated  July  1,  1904;  due  July  1,  1924.  Out- 
standing, $11,930,000.  Callable  at  105.  These  bonds  are 
not  secured  by  mortgage  but  are  a  direct  obligation,  and 
the  equity  is  a  heavy  one.  Earnings  have  in  recent  years 
steadily  averaged  from  two  and  one-half  to  three  times 
the  interest  requirements.  In  view  of  the  approaching 
maturity,  the  bonds  look  attractive  at  90,  at  which  the 
yield  is  6.25%. 

United  States  Steel  Corporation  10-60  year  sinking 
fund  5s,  dated  April  1,  1903;  due  April  1,  1963.  Out- 
standing, $189,346,500.  Callable  at  110  after  April  1, 
1913.  Sinking  fund  will  retire  about  $1,000,000  annu- 
ally after  April  1,  1913.  These  bonds  are  protected  by  a 
very  heavy  equity  and  stand  on  a  strong  investment 
plane.  At  W2y2,  the  present  price,  the  yield  is  about 
4.90%. 


1<>'S  How  to   Invest  Money   Wisely 

Victor  Fuel  Company  first  mortgage  sinking  fund  5s, 
dated  July  1,  1903;  due  July  1,  1953.  Outstanding, 
$1,871,000.  Sinking  fund,  two  cents  per  ton  on  all  coal 
mined.  The  bonds  are  secured  by  first  mortgage  on  over 
21,000  acres  of  coal  lands  in  Colorado  and  by  valuable 
collateral.  Earnings  in  recent  years  have  been  over  four 
times  the  interest  requirements  on  this  issue  and  on  the 
Victor-American  Fuel  bonds.  This  company  is  a  part  of 
the  latter  concern.  The  yield  at  the  present  price  of  85 
is  about  6%. 

Virginia  Carolina  Chemical  Company  first  mortgage 
15-year  5s,  dated  November  2,  1908;  due  December  1, 
1923.  Callable  at  105.  Sinking  fund  retires  $300,000 
per  annum.  The  property  which  this  issue  covers  by 
first  mortgage  is  far  in  excess  of  the  amount  of  the  issue 
and  the  earnings  have  always  shown  a  very  heavy  mar- 
gin of  safety.  At  present  quotation  of  98  the  bonds  yield 
about  5.20%. 

The  above  are  of  course  only  a  limited  number  of  in- 
dustrial issues,  selected  more  or  less  at  random.  There 
are  many  other  good  ones  in  the  market.  Nevertheless 
those  listed  above  represent  a  great  diversification  of  in- 
dustries, and  a  composite  investment  confined  to  indus- 
trials and  divided  in  equal  amounts  among  the  above 
issues  would  be  very  well  distributed.  Such  an  invest- 
ment fund  would  show  an  average  yield  of  nearly  Sy2%, 
which  is  certainly  very  satisfactory  in  view  of  the  gen- 
eral strength  of  the  issues. 


XIV 

Selected  Public  Utility  Bonds 

IN  these  times  of  high  commodity  prices  and  general 
high  costs,  the  temptation  to  the  investor  to  go  into 
untried  fields  in  order  to  increase  his  income  is 
very  strong.  One  of  the  great  fields  of  investment  which 
has  broadened  greatly  in  recent  years  is  the  public  utility 
field.  Here  it  is  that  one  can  find  opportunities  for  the 
intelligent  investment  of  funds  on  a  much  more  attractive 
basis  than  can  nowadays  be  secured  in  the  railroad  or 
municipal  fields.  But  while  the  field  is  a  broad  one,  the 
pitfalls  are  many  and  dangerous,  and  because  of  the  lack 
of  completeness  and  uniformity  in  the  matter  of  statistical 
information  and  other  data,  it  is  much  more  difficult  to 
make  safe  and  intelligent  selections  than  in  the  more 
thoroughly  established  fields. 

Nevertheless,  it  must  be  agreed  that  the  public  utility 
field  is  a  most  inviting  one  for  the  modern  investor,  and 
as  a  whole  has  elements  of  safety  which  cannot  be  found 
in  the  railroad  or  industrial  fields.  Where  a  public  utility 
concern  has  the  advantages  of  location,  and  gets  the 
steadily  accruing  benefits  of  increasing  population,  the 
potential  value  of  its  securities  is  often  of  great  moment. 

("109  ) 


110  How  to  Invest  Money  Wisely 

For  example,  a  street  railway  bond,  which,  half  a  dozen 
years  ago,  may  have  been  quite  speculative,  can  easily 
have  reached  a  high  investment  plane  provided  that  pop- 
ulation has  increased  steadily  and  the  outlook  for  further 
growth  is  strong.  Only  a  decade  ago  certain  of  the  bond 
issues  on  the  Brooklyn  Rapid  Transit  system  were  more 
or  less  doubtful.  But  with  the  vast  growth  of  traffic  of 
the  past  ten  years  the  earnings  of  this  system  have  stead- 
ily mounted  and  all  the  divisional  bonds  today  are  on  a 
strong  investment  plane,  and  even  the  junior  issues  are 
entitled  to  a  good  investment  rating. 

Of  course,  as  I  pointed  out  above,  discrimination  is 
most  important  in  making  investment  selections  in  this 
field.  Not  all  towns  and  cities  have  grown  steadily  in 
population  in  recent  years;  not  all  trolley  and  lighting 
companies  have  the  franchise  strength  that  is  desirable; 
and  a  very  large  number  are,  as  in  the  case  of  railroads 
and  industrials,  very  heavily  over-capitalized. 

Below  I  furnish  a  diversified  list  of  public  utility  bonds 
of  various  types.  All  of  these  bonds  are  not  necessarily 
high  grade,  although  some  are ;  but  as  a  whole,  they  have 
genuine  investment  strength.  In  view  of  the  attractive 
prices  at  which  some  of  these  issues  sell,  and  the  short- 
ness of  maturity  of  all  of  them,  it  seems  to  me  that  a 
very  good  composite  investment  scheme  could  be  worked 
out  with  this  list.  There  are  fifty  issues  to  be  described 
in  all,  and  if  one  were  to  divide  an  investment  fund 
equally  between  them,  he  would  come  out  very  well  in- 
deed, as  the  summary  will  show;  and  he  would  reduce 
the  risk  to  a  minimum. 


Selected  Public  Utility  Bonds 111 

American  Telephone  &  Telegraph  Co.  collateral  trust 
4s,  due  July  1,  1929.  Interest  Jan.  &  July  at  Bankers 
Trust  Co.,  New  York.  The  issue  is  protected  by  a  heavy 
margin  of  safety  and  valuable  collateral,  and  at  the  pres- 
ent price  of  90}4  yields  (if  held  to  maturity),  4.85  per 
cent,  on  the  investment.  A  very  safe  bond. 

Atchison  Railway,  Light  &  Power  Co.  first  &  refund- 
ing 5s,  due  Nov.  1,  1935.  Interest  May  &  Nov.  at  Fed- 
eral Trust  Co.,  Boston.  Company  owns  the  entire  elec- 
tric light,  street  railway  and  gas  business  of  Atchison, 
Ks.,  and  these  bonds  are  secured  by  absolute  first  lien. 
At  95  the  yield  is  5.40  per  cent.  An  excellent  investment 
issue,  running  23  years  from  date. 

Atlantic  City  Electric  Co.  first  &  refunding  5s,  due 
March  1,  1938.  Interest  March  &  Sept.  at  Girard  Trust 
Co.,  Philadelphia.  Callable  at  110  on  or  after  March  1, 
1913.  This  is  a  subsidiary  of  the  American  Gas  & 
Electric  Co.  which  guarantees  the  bonds.  Franchises 
are  strong  and  equity  is  heavy.  At  93  the  yield  is  5.50 
per  cent. 

Burlington  (la.)  Railway  &  Light  Co.  first  5s,  due 
March  1,  1932.  Interest  March  &  Sept.  at  Equitable 
Trust  Co.,  New  York.  Callable  at  105.  The  issue 
should  be  regarded  as  a  strong  one,  as  it  is  secured  by 
first  lien  on  replacement  value  far  in  excess  of  the  issue. 
The  yield  at  95  is  about  5.40  per  cent. 

Carolina  Power  &  Light  Co.  first  5s,  due  Aug.  1,  1938. 
Interest  Feb.  &  Aug.  1,  at  Standard  Trust  Co.,  New 


112  How  to  Invest  Money  Wisely 

York.  Callable  at  105  after  Aug.  1,  1913.  Company 
operates  the  street  railway,  gas  and  electric  light  service 
of  Raleigh,  N.  C,  and  is  a  constituent  company  of  the 
Electric  Bond  &  Share  Co.  (General  Electric  interests). 
Franchises  are  strong,  and  there  is  a  large  margin  of 
safety.  An  attractive  bond  at  the  price.  At  92  the  yield 
is  about  5.65  per  cent. 

Cincinnati  Gas  Transportation  Co.  first  5s,  due  July  1, 
1933.  Interest  Jan.  &  July  1,  at  Cincinnati  Trust  Co. 
Callable  at  110  after  July  1,  1913.  Company  is  leased 
to  Columbia  Gas  &  Electric  Co.  which  guarantees  all  the 
bonds.  Sixty  per  cent,  of  the  issue  are  also  guaranteed 
by  the  Cincinnati  Gas  &  Electric  Co.  These  bonds  are  a 
first  mortgage  and  appear  to  be  well  protected.  They 
are,  in  view  of  the  price,  to  be  regarded  as  a  good  in- 
vestment of  this  type,  although  not  of  the  highest  grade. 
At  89  the  yield  is  about  5.90  per  cent. 

Columbia  Railway,  Gas  &  Electric  Co.  first  5s,  due 
July  1,  1936.  Interest  Jan.  &  July  at  Columbia-Knicker- 
bocker Trust  Co.,  New  York.  Company  owns  all  the 
public  service  properties  in  Columbia,  S.  C.  Franchises 
are  perpetual  and  the  bonds  are  protected  by  a  heavy 
margin  of  safety.  At  94  the  yield  is  about  5.45  per  cent. 

Consumers  Power  Co.  first  lien  &  refunding  5s,  due 
Jan.  1,  1936.     Interest  Jan.  &  July  at  Harris,  Forbes  & 
Co.,  New  York,  or  Harris  Trust  &  Savings  Bank,  Chi- 
cago.    Callable  at  105  after  January  1.  1'Mn.     This  coin 
pany   is  controlled   l.v   tin-   ('uninnniwealth    Power.    Rail 


Selected  Public  Utility  Bonds 113 

way  &  Light  Co.,  and  these  bonds  are  well  secured  either 
directly  or  by  deposit  of  collateral  on  valuable  property. 
The  margin  of  safety  is  a  heavy  one,  and  the  investment 
position  of  the  issue  a  strong  one.  At  96,  with  24  years 
to  run,  the  yield  is  about  5.30  per  cent. 

Danville,  Urbana  &  Champaign  Railway  Co.  first  5s, 
due  March  1,  1923.  Interest  March  &  Sept.  at  Northern 
Trust  Co.,  Chicago.  Callable  at  105.  Company  operates 
electric  railways  connecting  cities  of  Danville,  Urbana  & 
Champaign,  111.,  with  branches,  and  the  bonds  are  guar- 
anteed by  the  Danville  Street  Railway  &  Light  Co.  and 
the  Urbana  &  Champaign  Railway,  Gas  &  Electric  Co. 
A  well  secured  issue.  At  96  the  yield  is  about  5.50  per 
cent. 

East  St.  Louis  &  Suburban  Co.  collateral  trust  5s,  due 
April  1,  1932.  Interest  April  &  Oct.  in  St.  Louis  or 
Philadelphia.  Callable  at  105.  This  is  a  holding  com- 
pany which  controls  a  large  system  of  electric  railways 
in  East  St.  Louis,  111.,  and  vicinity.  These  companies 
have  valuable  franchises  and  the  bonds  are  strongly  pro- 
tected by  a  wide  margin  of  safety.  A  very  attractive  in- 
vestment at  the  price.  At  96  the  yield  is  about  5.35  per 
cent. 

Eastern  Oregon  Light  &  Power  Co.  first  &  refunding 
5s,  due  October  1,  1929.  Interest  April  &  October  at 
Fidelity  Trust  Co.,  Philadelphia.  Callable  at  105.  The 
franchises  of  this  company  are  strong,  and  the  earnings 
of  the  company  justify  a  good  rating  for  the  bonds.  At 
97,  the  yield  is  about  5.28  per  cent. 


114  How  to  Invest  Money  Wisely 

Fort  Smith  Light  &  Traction  Co.  first  5s,  due  March 
1,  1936.  Interest  March  &  Sept.  in  New  York  or  Chi- 
cago. Callable  at  105.  Company  owns  all  the  street 
railways  in  the  city  of  Fort  Smith,  Ark.,  and  all  the  elec- 
tric and  gas  properties  in  Fort  Smith  and  Van  Burcn. 
The  bonds  are  protected  by  a  wide  margin  of  safety  and 
appear  entirely  secure.  At  91,  the  yield  is  about  5.70 
per  cent. 

Fort  Worth  Power  &  Light  Co.  first  5s,  due  Aug.  1, 
1931.  Interest  Feb.  &  Aug.  in  New  York  or  Cleveland. 
Callable  at  105.  The  bonds  are  a  first  lien  on  the  entire 
electric  power  and  lighting  business  of  Fort  \Yorth, 
Texas,  and  are  strongly  protected.  At  96  the  yield  is 
about  5.35  per  cent. 

Helena  Light  &  Railway  Co.  first  5s,  due  Sept.  1,  1925. 
Interest  March  &  Sept.  1,  at  Columbia-Knickerbocker 
Trust  Co.,  New  York.  Callable  at  105.  Company  owns 
and  operates  the  entire  public  utility  business  of  Helena. 
Montana,  on  franchises  which  extend  to  1926.  Sinking 
fund  will  retire  bulk  of  issue  by  maturity.  There  is  a 
wide  margin  of  safety  in  earnings,  and  the  bonds  should 
have  a  good  rating.  At  90  the  yield  is  over  6  per  cent. 

Indiana,  Columbus  &  Eastern  Traction  Co.  general  & 
refunding  5s,  due  May  1,  1926.  Interest  May  &  Nov. 
in  Philadelphia.  Callable  at  105.  These  bonds  are  guar- 
anteed by  the  Ohio  Electric  Railway  and  although  sub- 
ject to  two  prior  liens,  are  in  a  very  good  investment 
position.  At  92  the  yield  is  about  6  per  cent.,  as  the 
bonds  have  onlv  14  years  t«>  run. 


Selected  Public  Utility  Bonds 1K> 

Ironwood  &  Bessemer  Railway  &  Light  Co.  first  5s, 
due  Feb.  1,  1936.  Interest  Feb.  &  Aug.  1,  at  American 
Trust  Co.,  Boston.  Callable  at  104  on  and  after  Feb.  1, 
1916.  The  property  back  of  this  issue  appears  to  be 
amply  sufficient,  and  the  company  shows  a  good  surplus 
above  charges.  At  92  the  yield  is  about  5.65  per  cent. 

Jackson  (Miss.)  Light  &  Traction  Co.  first  5s,  due 
April  1,  1922.  Interest  April  &  Oct.  1,  in  New  York. 
Callable  at  105  on  April  1,  1914,  and  thereafter.  This 
company  does  the  entire  electric  light,  power,  gas  and 
street  railway  business  of  Jackson,  Miss.,  and  the  earn- 
ings show  a  heavy  margin  of  safety.  At  96  the  yield  is 
about  5.55  per  cent. 

Jacksonville  (Fla.)  Traction  Co.  first  consolidated  5s, 
due  March  1,  1931.  Interest  March  &  Sept.  at  State 
Street  Trust  Co.,  Boston.  Callable  at  105.  Company 
does  entire  street  railway  business  of  Jacksonville,  Fla., 
under  franchise  extending  to  1932.  The  bonds  are  sub- 
ject to  a  first  mortgage  but  enjoy  a  heavy  margin  of 
safety.  At  95  they  yield  about  5.40  per  cent. 

Johnstown  (Pa.)  Passenger  Railway  Co.  refunding  4s, 
due  Dec.  1,  1931.  Interest  June  &  December  at  Johns- 
town Trust  Co.,  Johnstown,  Pa.  Callable  at  105.  This 
company  operates  street  railways  in  city  of  Johnstown, 
Pa.,  and  is  one  of  the  constituent  companies  of  the  Amer- 
ican Railways  Co.  of  Philadelphia.  It  is  itself  leased  to 
the  Johnstown  Traction  Co.  until  1928.  Franchises  are 
perpetual.  Although  there  is  a  small  underlying  mort- 
gage, the  margin  of  safety  is  a  liberal  one,  and  the  bonds 


116  How  to  Invest  Money  Wisely 

are  very  attractive  at  the  price  of  89,  at  which  the  yield 
is  about  5  per  cent. 

Kansas  City  (Mo.)  Gas  Co.  first  5s,  due  April  1,  1922. 
Interest  April  &  October  in  New  York.  This  is  one  of 
the  constituent  companies  of  the  United  Gas  Improve- 
ment Co.  of  Philadelphia,  and  the  bonds  are  in  a  very 
strong  investment  position.  They  have  but  ten  years  to 
run  and  at  98  yield  about  5.25  per  cent. 

Madison  Rirer  Power  Co.  first  5s,  due  Feb.  1,  1935. 
Interest  Feb.  &  Aug.  at  United  States  Mortgage  &  Trust 
Co.,  of  New  York.  Callable  at  105.  Company  is  con- 
trolled by  Butte  Electric  &  Power  Co.  which  guarantees 
the  bonds.  This  is  to  be  regarded  as  a  very  strong  issue, 
and  at  the  price  of  94^  yields  about  5.45  per  cent. 

Michigan  United  Railways  Co.  first  &  refunding  5s, 
due  May  1,  1936.  Interest  May  &  November  at  Colum- 
bia-Knickerbocker Trust  Co.,  New  York.  Callable  at 
110  after  May  1,  1916.  While  these  bonds  have  several 
prior  liens  ahead  of  them,  they  are  in  a  strong  and  stead- 
ily improving  position.  The  bonds  are  entitled  to  a 
strong  rating.  At  the  present  price  of  94,  the  yield  is 
about  5.45  per  cent. 

Milwaukee  Gas  Light  Co.  first  4s,  due  May  1,  1927. 
Interest  May  and  November  at  J.  &  W.  Seligman  &  Co., 
New  York.  This  is  a  well-seasoned  bond  which  is 
secured  by  practically  first  lien  on  the  property  of  the 
company,  which  is  one  of  the  constituent  companies  of 


Selected  Public  Utility  Bonds  117 

the  American  Light  &  Traction  Co.    Callable  at  110.    At 
91  (the  recent  price)  the  yield  is  about  4.85  per  cent. 

New  Orleans  Railway  &  Light  Co.  general  4l/2 s,  due 
July  1,  1935.  Interest  January  and  July  at  New  York 
Trust  Co.,  New  York.  Company  is  controlled  by  Ameri- 
can Cities  Co.  and  bonds  are  well  protected  by  a  wide 
margin  of  safety,  although  subject  to  various  underlying 
liens.  Callable  at  105.  At  price  of  87  the  yield  is  about 
5.50  per  cent. 

New  York  &  Richmond  Gas  Co.  first  5s,  due  May  1, 
1921.  Callable  at  110.  Interest  May  and  November  at 
Liberty  National  Bank,  New  York.  The  issue  is  secured 
by  first  lien,  and  as  it  has  but  nine  years  to  run,  is  very 
attractive  at  the  price  of  96,  the  yield  being  about  5.60 
per  cent. 

Norfolk  &  Portsmouth  Traction  Co.  first  5s,  due  June 
1,  1936.  Interest  June  and  December  1,  at  Trust  Co.  of 
North  America,  Philadelphia.  Callable  at  110.  This 
company  was  in  1911  consolidated  with  Virginia  Rail- 
way &  Power  Co.,  which  has  assumed  the  bonds.  They 
are  well  protected  in  equity  and  earnings,  and  look  attract- 
ive at  the  price  of  88,  the  yield  being  about  5.90  per  cent. 

Northern  Indiana  Gas  &  Electric  Co.  first  and  refund- 
ing 5s,  due  April  1,  1929.  Interest  April  and  October  in 
New  York  and  Chicago.  Callable  at  103.  This  is  one  of 
the  constituent  companies  of  the  United  Gas  Improve- 
ment Co.,  and  the  bonds  are  strongly  protected.  At  90, 
the  yield  is  about  5.90  per  cent. 


118  How  to  Invest  Money  Wisely 

Xorthern  Texas  Traction  Co.  first  5s,  due  January  1, 
1933.  Interest  January  and  July  in  New  York  or  Cleve- 
land. Callable  at  105  on  or  after  January  1,  1913.  These 
bonds  are  prior  in  lien  to  the  Northern  Texas  Electric 
Co.  collateral  trusts  5s,  being  secured  by  first  mortgage  on 
the  entire  electric  railway  system  of  the  company.  The 
lines  are  located  in  Fort  Worth  and  Oak  Cliff,  Texas, 
with  an  interurban  line  of  about  33  miles  between  Fort 
Worth  and  Dallas.  The  chief  franchise  runs  to  1973. 
The  bonds  are  protected  by  a  very  wide  margin  of  safety, 
and  are  to  be  regarded  as  an  attractive  investment  at 
current  prices.  At  the  present  price  of  101  the  yield  is 
nearly  5  per  cent. 

North  Carolina  Public  Service  Co.  first  and  refunding 
5s,  due  April  1,  1934.  Interest  April  and  October  1  in 
New  York.  Callable  at  105  on  three  weeks'  notice. 
Except  for  a  small  prior  lien  on  a  portion  of  the  property, 
these  bonds  are  a  first  mortgage  on  the  entire  utility 
system  of  Greensboro  and  High  Point,  N.  C,  under 
franchises  which  all  extend  beyond  the  maturity  of  the 
bonds.  A  sinking  fund  will  provide  for  a  large  part  of 
the  issue  before  maturity,  and  as  the  bonds  are  protected 
by  a  liberal  margin  of  safety,  they  seem  a  desirable 
investment  at  the  price  of  about  90,  the  yield  being  about 
5.80  per  cent. 

Northern  Illinois  Light  &  Traction  Co.  first  5s,  due 
July  1,  1923.  Interest  January  and  July  1  at  American 
Trust  Co.,  Boston.  Secured  by  first  lien  on  entire  prop- 
erty of  the  company,  which  operates  a  street  railway, 


Selected  Public  Utility  Bonds 


lighting  and  power  plant  in  Ottawa,  111.,  under  franchises 
which  extend  beyond  the  redemption  date.  This  is  a 
subsidiary  company  of  the  Western  Railway  &  Lighting 
Co.  As  the  bonds  have  but  11  years  to  run,  they  look 
attractive  at  the  price  of  95,  the  yield  being  about  5.65 
per  cent. 

Xorthcrn  Ohio  Traction  &  Light  Co.  first  consolidated 
4s  and  5s,  due  January  1,  1933.  Interest  January  and 
July  in  New  York  or  Cleveland.  This  bond  is  secured 
subject  to  about  $3,000,000  of  prior  liens,  but  is  protected 
by  a  good  equity,  and  stands  well  as  one  of  the  divisional 
liens  of  the  system.  The  bulk  of  the  issue  carries  4  per 
cent  interest,  and  at  the  price  of  74  yields  6.20  per  cent. 
As  the  bonds  have  but  21  years  to  run,  they  look  attract- 
ive at  the  price. 

Oklahoma  Gas  &  Electric  Co.  first  20-year  5s,  due 
October  1,  1929.  Interest  April  and  October  at  Harris 
Trust  £  Savings  Bank,  Chicago.  Callable  at  102 1/>  and 
interest,  on  and  after  October  1,  1914.  The  issue  is 
secured  by  first  mortgage  on  all  the  property  of  the  com- 
pany, which  does  the  entire  gas  and  electric  business 
of  Oklahoma  City  and  vicinity.  The  earnings  show  a 
heavy  margin  of  safety  and  the  franchises  extend  well 
beyond  the  life  of  the  bonds.  At  the  price  of  97  the 
yield  is  5.25  per  cent.,  with  17  years  to  run. 

Ottumiva  Railway  &  Light  Co.  first  and  refunding  5s, 
due  January  1,  1924.  Interest  January  and  July  1  at 
Central  Trust  Co.  of  Illinois,  Chicago.  Callable  at  103 


120  How  to  Invest  Money  Wisely 

on  four  weeks'  notice.  The  bonds  are  well  secured  on  all 
the  property  of  the  company,  which  embraces  the  entire 
public  utility  business  of  Ottumwa,  Iowa.  A  small  prior 
lien  of  $310,000  due  1921,  underlies  the  issue  on  a  part 
of  the  property.  The  company  itself  is  controlled  by 
the  Standard  Gas  &  Electric  Co.,  and  the  earnings  are  at 
present  over  double  the  interest  on  this  issue.  With  only 
12  years  to  run,  these  bonds  look  attractive  at  the  present 
quotation  of  about  90,  the  yield  being  about  6.20  per 
cent. 

Pacific  Poiver  &  Light  Co.  first  and  refunding  5s,  due 
August  1,  1930.  Interest  February  and  August  at  United 
States  Mortgage  &  Trust  Co.,  New  York.  Callable  at  105 
until  December  31,  1925;  at  104  during  1928;  at  102 
during  1929,  and  at  101  from  January  1  to  June  30,  1930. 
This  company  is  a  consolidation  of  public  utility  prop- 
erties serving  about  50  communities  in  the  States  of 
Washington,  Oregon  and  Idaho.  It  is  controlled  by  the 
American  Power  &  Light  Co.,  which  in  turn  is  con- 
trolled by  the  Electric  Bond  &  Share  Co.,  the  latter 
being  controlled  by  General  Electric  interests.  The  fran- 
chises are  all  strong,  and  there  is  a  good  margin  of 
safety  in  earnings,  which  will  further  increase  as  new 
construction  work  is  completed.  A  first-class  bond  at 
an  attractive  price.  At  93y2  the  yield  is  about  5.55  per 
cent. 

Pensacola  Electric  Co.  first  5s,  due  August  1,  1931. 
Interest  February  and  August  at  Old  Colony  Trust  Co., 
Boston.  Callable  at  105  on  two  weeks'  notice.  Com- 


Selected  Public  Utility  Bonds 121 

pany  controls  the  entire  street  railway  and  electric  light- 
ing business  of  the  city  of  Pensacola,  Fla.,  under  strong 
franchises  which  extend  beyond  the  life  of  these  bonds. 
This  issue  is  secured  by  first  or  collateral  first  lien  on 
the  entire  property,  and  the  margin  of  safety  is  ample 
to  justify  a  good  rating  for  the  bonds.  At  the  price  of 
90  the  yield  is  about  5.88  per  cent. 

Peoria  Gas  &  Electric  Co.  first  5s,  due  January  1, 
1923.  Interest  January  and  July  at  Bankers  Trust  Co., 
New  York.  Callable  at  105  on  60  days'  notice.  Com- 
pany owns  and  operates  gas  and  electric  light  plants  in 
Peoria,  111.,  and  vicinity,  and  is  controlled  by  the  Peoria 
Light  Co.,  which  in  turn  is  controlled  by  the  Union  Rail- 
way, Gas  &  Electric  Co.  The  franchises  are  all  strong, 
and  as  these  bonds  are  an  underlying  issue,  secured  by 
absolute  first  mortgage  and  are  protected  by  a  wide 
equity,  a  strong  rating  is  justified.  At  100  the  bonds 
yield  the  full  5  per  cent. 

Portland  (Me.)  Electric  Co.  first  sinking  fund  5s,  due 
August  1,  1926.  Interest  February  and  August  1  at 
Portland  Trust  Co.,  Portland,  Me.  Callable  at  110  and 
interest  on  5  weeks'  notice.  Sinking  fund  retires  1  per 
cent,  annually  of  outstanding  bonds.  The  company 
operates  under  strong  franchises  and  the  earnings  have 
long  shown  a  wide  margin  of  safety.  An  attractive 
investment,  running  14  years.  At  the  price  of  98%,  the 
yield  is  5.15  per  cent. 

Puget  Sound  Poiuer  Co.  first  5s,  due  June  1,  1933. 
Interest  June  and  December  1  at  Old  Colony  Trust  Co., 


122  How  to  Invest   Money  Wisely 

Boston.  Callable  at  110  on  60  days'  notice.  Sinking 
fund  retires  1  per  cent,  of  issue  annually.  Company  is 
controlled  by  Seattle  Electric  Co.,  the  latter  being  con- 
trolled by  the  Puget  Sound  Light  &  Traction  Co.,  one  of 
the  "Stone  &  Webster"  properties.  The  bonds  are  guar- 
anteed by  the  Seattle  Electric  Co.,  and  are  in  a  strong 
investment  position.  At  99  the  yield  is  about  5.08  per 
cent. 

Southern  Power  Co.  first  5s,  due  March  1,  1930.  In- 
terest March  and  September  1  at  Farmers  Loan  &  Trust 
Co.,  Xew  York.  Callable  at  105  on  any  interest  date. 
Company  supplies  power  to  more  than  148  mills  in  South 
Carolina,  and  also  does  the  entire  public  utility  business 
of  Charlotte,  S.  C,  through  ownership  of  the  Charlotte 
Electric  Railway,  Light  &  Power  Company.  The  fran- 
chises are  strong,  and  these  bonds  are  protected  by  a 
first  mortgage  and  a  high  margin  of  safety.  At  99  the 
yield  is  about  5.08  per  cent. 

Springfield  (Mo.)  Railway  &  Light  Co.  first  lien  sink- 
ing fund  5s,  due  May  1,  1926.  Interest  May  and  No- 
vember 1  at  Guaranty  Trust  Co.,  New  York.  Callable  at 
102  and  interest  on  any  interest  date.  This  is  one  of  the 
subsidiary  companies  of  the  Federal  Light  &  Traction 
Co.,  and  the  bonds  are  secured  by  first  lien  on  the  entire 
public  utility  business  of  Springfield,  Mo.  The  franchises 
extend  well  beyond  the  maturity  of  the  bonds.  At  94, 
the  yield  is  about  5.65  per  cent. 

Superior  Water,  Light  &  Power  Co.  first  sinking  fund 
K  due  May  1,  1931.  Interest  May  and  November  at 


Selected  Public  Utility  Bonds 


I'  n  it  eel  States  Mortgage  &  Trust  Co.,  New  York.  Callable 
at  103  and  interest.  Company  controls  the  public  utilities 
of  Superior,  Wis.,  and  an  interurban  line  between 
Superior  and  Duluth.  The  franchises  are  strong,  and  the 
bonds  protected  by  a  high  margin  of  safety.  At  82  the 
yield  is  about  5.55  per  cent. 

Tri-City  Railway  &  Light  Co.  first  and  refunding  5s, 
due  July  1,  1930.  Interest  January  and  July  1  at  Central 
Trust  Co.,  New  York.  Callable  at  105  on  any  interest 
date.  Bonds  are  a  first  lien  on  interurban  railway  extend- 
ing from  Davenport  to  Muscatine,  Iowa,  about  30  miles, 
and  also  subject  to  prior  liens  on  all  the  other  property  of 
the  company,  which  does  the  public  utility  business  of 
Davenport  and  vicinity.  Franchises  are  strong,  and  the 
margin  of  safety  is  steadily  growing.  At  95  the  yield  is 
about  5.45  per  cent. 

Tntmbull  Public  Service  Corp.  first  sinking  fund  6s,  due 
June  1,  1920.  Interest  June  and  December  in  New  York 
and  Cleveland.  Callable  at  105  prior  to  June  1,  1915, 
and  at  102  thereafter.  Sinking  fund  retires  2  per  cent. 
of  bonds  annually  after  June  1,  1915.  Company  oper- 
ates the  gas,  electric  light  and  water  utilities  of  the  cities 
of  Warren,  Niles,  Newton  Falls  and  Leavittsburg,  Ohio, 
and  is  under  the  management  of  the  Doherty  Operating 
Co.  Franchises  extend  beyond  life  of  bonds  and  the 
margin  of  safety  is  a  growing  one.  At  98  the  yield  is 
about  6.15  per  cent. 

Twin  States  Gas  &  Electric  Co.  first  and  refunding 
,  due  October  1,   1926.     Interest  April  and  October 


124  How  to  Invest  Money  Wisely 

1  at  Knickerbocker  Trust  Co.,  New  York.  Company 
operates  public  utilities  in  Dover,  N.  H.,  and  Brattleboro, 
Vt.,  and  also  electric  light  and  power  in  various  other 
towns  in  this  vicinity.  Is  controlled  by  National  Light, 
Heat  &  Power  Co.,  which  guarantees  the  bonds.  A 
good  margin  of  safety  is  shown,  and  at  92  the  bonds 
yield  about  5.30  per  cent. 

Union  Electric  Light  &  Power  Co.  refunding  and  ex- 
tension 5s,  due  May  1,  1933.  Interest  May  and  Novem- 
ber 1  at  Bankers  Trust  Co.,  New  York.  Callable  at  110 
on  and  after  May  1,  1918.  Company  does  a  large  electric 
light  and  power  business  in  the  city  of  St.  Louis  under 
strong  franchises,  and  is  controlled  by  the  North  Ameri- 
can Co.  The  bonds  enjoy  a  wide  equity  and  a  good  in- 
vestment rating  is  justified.  At  97  the  yield  is  about  5.25 
per  cent. 

United  Electric  Light  &  Power  Co.  first  consolidated 
4J/2S,  due  May  1,  1929.  Interest  May  and  November  at 
Maryland  Trust  Co.,  Baltimore.  This  is  one  of  the  liens 
of  the  Consolidated  Gas,  Electric  Light  &  Power  Co.  of 
Baltimore,  and  these  bonds  are  in  a  strong  investment 
position.  At  the  price  of  94  the  yield  is  about  5  per  cent. 

Utah  Light  &  Power  Co.  consolidated  4s,  due  January 
1,  1930,  interest  January  and  July  at  Empire  Trust  Co., 
New  York.  Callable  at  100  on  any  interest  date.  Com- 
pany controls  public  utilities  in  the  cities  of  Salt  Lake 
and  Ogden,  Utah,  and  is  controlled  by  the  Union  Pacific 
Railroad  Co.  Franchise  extends  to  1955  and  bonds  are 


Selected  Public  Utility  Bonds  125 

well  protected,  although  not  a  first  mortgage  on  all  the 
property.    At  .80  the  yield  is  about  5.80  per  cent. 

Virginia  Railway  &  Poiver  Co.  first  and  refunding  5s, 
due  July  1,  1934.  Interest  January  and  July  1  at  Equit- 
able Trust  Co.,  New  York.  Callable  at  105  at  any  in- 
terest date.  Bonds  are  a  first  lien  on  practically  all  the 
property  of  the  company,  which  operates  the  electric 
utilities  in  Richmond  and  Petersburg,  Va.,  and  also  con- 
trols various  other  companies,  including  the  street  rail- 
way of  Norfolk  and  Portsmouth,  Va.  There  is  a  good 
margin  of  safety  in  earnings,  and  at  96  the  bonds  yield 
about  5.30  per  cent. 

Western  Ohio  Railway  Co.  first  5s,  due  November  1, 
1921.  Interest  May  and  November  1  in  New  York. 
Company  is  controlled  by  the  Western  Ohio  Railroad 
Co.,  which  guarantees  the  bonds.  On  a  part,  the  issue  is 
subject  to  a  small  first  mortgage,  but  is  well  protected 
by  a  good  margin  of  safety.  At  93  the  yield  is  about  6.00 
per  cent. 

York  Railways  first  5s,  due  December  1,  1937.  In- 
terest June  and  December  1  at  Philadelphia.  Callable  at 
110  on  any  interest  date.  Bonds  are  a  first  lien  on  all 
the  property  of  the  company,  consisting  of  over  82  miles 
of  street  railway,  with  perpetual  franchises.  Issue  en- 
joys a  good  margin  of  safety.  At  97  the  yield  is  about 
5.20  per  cent. 

This  completes  the  list  of  fifty  selected  public  utility 
bonds.  Not  all  of  these  issues  are  of  equal  strength, 


126  How  to  Invest  Money  Wisely 

but  all  pass  good  investment  tests,  and  from  the  list 
many  selections  can  be  made  for  individual  investment 
or  for  general  investment  distribution. 

Recapitulation:  For  an  investor  who  wishes  to  dis- 
tribute a  portion  of  his  capital  very  broadly  among  public 
utility  issues,  probably  no  better  list  could  be  selected.  It 
will  be  noted  that  no  two  of  these  issues  are  tied  to  one 
string ;  all  are  spread  broadly  over  the  entire  country ; 
there  is  diversity  of  type,  diversity  of  lien,  diversity  of 
management,  etc.  Of  course,  no  investor  should  put  his 
entire  capital  into  one  line  like  public  utility  bonds,  but 
for  one  who  has  a  substantial  investment  fund,  about  25 
per  cent,  invested  in  this  list,  in  equal  amounts  of  each 
issue,  would  be  investment  intelligence  of  a  high  order. 
For  such  an  investor,  the  scheme  would  work  out  as 
*hown  on  page  127. 

In  this  list  there  are  250  bonds,  5  of  each  issue.  The 
total  cost  of  250  bonds  at  the  prices  shown  would  be 
$231,237.50,  and  the  average  yield  on  the  money,  assum- 
ing that  the  bonds  would  be  held  until  maturity,  would 
be  over  S1/^  per  cent.  The  total  income  per  annum  on 
the  investment  would  be  $12,175,  so  that,  disregarding 
the  appreciation  to  par  during  the  life  of  the  bonds,  the 
holder  would  have  a  straight  yield  of  over  5i/i  per  cent, 
nn  his  investment. 

Of  course,  a  smaller  investor  could  either  eliminate 
some  of  the  issues  or  else  buy  only  one  or  two  of  each. 
And  even  a  very  large  investor,  if  he  wished  to  concen- 
trate his  holding  more,  could  select  a  portion  of  the  issues 


Selected  Public  Utility  Bonds 


127 


Amount                Title                               ft 
$5,000  Am.  Tel.  &  Teleg.  col.  4s... 
5,000  Atchison  Ry.  L.  &  P.  5s  
5000  Atlantic   City   El    5s  

aturity 
1929 
1935 
1938 
1932 
1938 
1933 
1936 
1936 
1923 
1932 
1929 
1936 
1931 
1925 
1926 
1936 
1922 
1931 
1931 
1922 
1935 
1936 
1927 
1935 
1921 
1936 
1929 
1933 
1934 
1923 
1933 
1929 
1924 
1930 
1931 
1923 
1926 
1933 
1930 
1926 
1931 
1930 
1920 
1926 
1933 
1929 
1930 
1934 
1921 
1937 

Price 

90i 
95 
03 
95 
92 
89 
94 
96 
96 
96 
97 
91 
96 
90 
92 
92 
96 
95 
89 
98 
94i 
94 
91 
87 
96 
88 
90 
101 
90 
<J5 
74 
97 
90 
93  i 
90 
100 
98i 
99 
99 
94 
82 
90 
98 
92 
97 
94 
80 
96 
93 
97 

Net  Cost 
$4,512.50 
,750.00 
,150.00 
,250.00 
,100.00 
,450.00 
,700.00 
4,800.00 
4,800.00 
4,800.00 
4,850.00 
4,550.00 
4,800.00 
4,500.00 
4,600.00 
4,600.00 
4,800.00 
4,750.00 
4,450.00 
4,900.00 
4,725.00 
4,700.00 
4,550.00 
4,350.00 
4,800.00 
4,400.00 
4,500.00 
5,050.00 
4,500.00 
4,750.00 
3,700.00 
4,850.00 
4,500.00 
4,675.00 
4,500.00 
5,000.00 
4,925.00 
4,950.00 
4,950.00 
4,700.00 
4,100.00 
4,500.00 
4,900.00 
4,600.00 
4,850.00 
4,700.00 
4,000.00 
4,800.00 
4,650.00 
4,850.00 

Yield 
4.85% 
5.40 
5.50 
5.40 
5.65 
5.90 
5.45 
5.30 
5.50 
5.35 
5.28 
5.70 
5.35 
6.00 
6.00 
5.65 
5.55 
5.40 
5.00 
5.25 
5.45 
5.45 
4.85 
5.50 
5.60 
5.90 
5.90 
5.00 
5.80 
5.65 
6.20 
5.25 
6.20 
5.55 
5.88 
5.00 
5.15 
5.08 
5.08 
5.65 
5.55 
5.45 
6.15 
5.30 
5.25 
5.00 
5.80 
5.30 
6.00 
5.20 

5,000  Burlington  Ry.  &  Lgt.  5s.. 
5  000  Carol  Pr  &  Lgt  5s 

5  000  Cin  Gas  Trans  5s 

5,000  Colum.  Ry.  G.  &  E.  5s  
5,000  Consumers  Pr.  5s  
5,000  Danv.  Ur.  &  Champ.  5s.... 
5,000  E.  St.  Louis  &  Sub.  5s  
5  000  East  Orego  L  &  P  5s 

5  000  Ft  Smith  L  &  Tr  5s 

5  000  Ft  Worth  P.  &  L.  5s  

5000  Helena  Lt.  &  Ry.  5s  

5,000  Ind.  Col.  &  East.  Tr.  5s  
5,000  Ironwood  &  Bess.  R.  &  L.  5s 
5  000  Jackson  L.  &  T  5s  

5000  Jacksonv  Tr.  (Fla.)  us  

5,000  Johnstown  Pass.  Ry.  4s.... 
5,000  Kansas  C.  (Mo.)  Gas  5s... 
5  000  Madison  Riv  Pr  5s  

5,000  Mich.  United  Rys.  5s  
5000  Milvv  Gas  Lt  4s  

5,000  New  Orleans  Ry.  &  L.  4is.. 
5,000  N.  Y.  &  Richmond  Gas  5s  .  . 
5,000  Norf.  &  Ports.  Tr.  5s  
5,000  North  Ind.  Gas  &  El.  5s... 
5  000  Northern  Texas  Tr  5s.  ... 

5,000  N.  Car  Pub.  Ser.  5s  

5,000  Nor  111.  L.  &  Tr.  5s  

5,000  Nor.  Ohio  Tr.  &  Lt.  4s.. 
5,000  Okla.  Gas  &  El.  5s  

5,000  Ottumwa  Ry.  &  Lt.  5s  
5,000  Pac  Pwr  &  Lt  5s  

5  000  Pensacola  El  5s  

5,000  Peoria  Gas  &  El.  5s  
5,000  Portland  (Me.)  El.  5s  
5000  Puget  Sound  Pr  5s  

5000  Southern  Pr  5s  

5,000  Springfield  (Mo.)  Ry.  &  El.  5s 
5,000  Superior  Wat.  L.  &  P.  4s... 
5  000  Tri-City  Rv  &  L  5s  

5,000  Trumbull  Pub.  Ser.  6s  
5,000  Twin  States  Gas  &  El.  4  As.  .  . 
5,000  Union  El.  Lgt.  &  Pr.  5s  
5,000  United  El.  Lgt.  &  Pr.  4$s.  . 
5,000  Utah  Lt.  &  Pr.  4s  
5,000  Virg.  Ry.  &  Pr.  5s  
5,000  Western  Ohio  Ry.  5s  
5,000  York  Railways  5s  

$2.30,000 


$231,237.50 


128  How  to  Invest  Money  Wisely 

in  $10,000  lots  or  even  larger  amounts.  In  any  event, 
it  would  be  found  that  within  this  list  there  is  room  for  a 
wide  range  of  diversification. 

Most  of  these  issues  have  fairly  good  markets,  but  of 
course  the  purpose  in  buying  bonds  of  this  character 
should  be  permanent  investment,  and  not  for  purposes 
of  appreciation.  It  will  be  noted  that  due  regard  is  given 
to  the  length  of  life  of  each  bond,  and  no  bond  here 
suggested  runs  beyond  1938,  while  the  average  life  of  the 
list  is  less  than  20  years. 


XV 
Railroad  Preferred  Stocks  as  Investments 

HERETOFORE  we  have  confined  our  descriptions 
chiefly  to  bond  issues.  Bonds  are,  primarily, 
to  be  regarded  as  more  exclusively  in  the  class 
of  sound  investments  than  stocks,  although  this 
of  course  does  not  hold  true  in  many  individual  in- 
stances. The  bondholder,  however,  is  always  technically 
the  "investor,"  or  leaner  of  funds,  while  the  stockholder 
is  the  partner.  For,  if  one  puts  $1,000  into  the  stock  of 
a  railroad,  such  as  the  Atchison,  Topeka  &  Santa  Fe, 
he  is,  legally,  going  into  partnership  with  the  other 
owners  of  this  road's  capital  stock,  while,  if  he  puts 
$1,000  into  a  bond  of  the  same  railroad,  he  is  simply  a 
creditor  of  the  company,  and  is  loaning  the  concern, 
under  certain  agreed  conditions,  this  amount  of  money. 
But,  as  in  the  case  of  bond  issues,  there  are  various 
kinds  of  stocks,  the  different  provisions  of  which  have 
the  result  of  giving  the  owner  more  or  less  of  a  prior 
claim  as  against  certain  other  stockholders.  Thus  we 
find  that  many  stock  issues  are  "preferred"  as  to  posi- 
tion or  interest  in  the  enterprise.  This  preference  is 
sometimes  limited  to  a  prior  claim  on  the  income  or 
profits;  in  other  instances  it  covers  also  the  tangible  as- 

(129) 


130  How  to  Invest  Money  Wisely 

sets  of  the  corporation  in  the  event  of  liquidation;  and 
in  still  other  cases  it  embraces  also  the  voting  power, 
preferred  stockholders  sometimes  having  a  voting  privi- 
lege to  the  exclusion  of  the  other  stockholders.  There 
are  other  instances  where  the  voting  privilege  is  with- 
held from  preferred  shareholders  in  consideration  of  the 
preference  granted  for  a  prior  division  of  or  claim  on 
income;  and  ordinarily  they  also  forego  a  further  claim 
on  profits  beyond  the  fixed  amount  for  which  they  have 
preference  before  any  dividends  are  paid  on  any  other 
classes  of  stock.  In  this  limitation  of  income  the  pre- 
ferred stock  partakes  of  one  of  the  characteristics  of 
the  ordinary  bond. 

In  fact,  the  varying  terms  in  preferred  stock  issues  of 
railroads  and  other  corporations  have  a  tendency  to 
qualify  the  shareholder's  position  as  a  plain  business 
partner.  The  preferred  shareholder,  while  still  being 
bound  up  as  one  of  the  owners  of  the  enterprise,  is  ac- 
corded a  prior  claim  on  income  or  on  assets,  in  consid- 
eration of  agreeing  to  be  content  with  only  a  fixed 
amount  of  the  profits  per  year,  and  allowing  the  other 
partners  to  divide  up  the  balance.  He  therefore  holds 
a  dual  position,  and  while  one  of  the  owners  of  the  prop- 
erty, as  every  shareholder  is  an  owner,  he  at  the  same 
time  holds  a  prior  claim  on  the  income  as  the  loaner  or 
bondholder  does. 

Of  course  there  are  all  kinds  of  preferred  stocks, 
good,  l>:id  and  indifferent.  Some  are  highly  speculative, 
just  as  many  common  stocks  are,  and  some  are  very 
"high  grade"  and  secure,  as  in  the  cases  of  many  bonds. 


Railroad  Preferred  Stocks  as  Investments     Ml 

For  the  genuine  investor,  who  has  no  idea  of  speculating 
on  the  future,  and  who  is  in  search  of  stability  of  both 
income  and  principal,  the  average  preferred  stock  is  of 
course  to  be  selected  rather  than  the  common  stock,  even 
when  all  other  things  are  equal.  For  example,  it  would 
take  very  little  demonstration  to  show  that  Atchison  pre- 
terred,  a  5  per  cent  stock,  is  more  desirable  for  perma- 
nent investment  than  New  York  Central,  which  is  also 
a  5  per  cent  stock.  If  one  wished  to  speculate,  then 
New  York  Central  might  be  the  better  in  the  long  run, 
but  not  otherwise. 

In  order  to  show  the  varying  characteristics  of  the 
leading  preferred  stocks  of  steam   railroads,   I  append  • 
below  brief  descriptions  of  some  of  the  important  issues, 
most  of  which  have  for  many  years  stood  on  a  sound 
plane  as  permanent  investments. 

Atchison,  Topeka  &  Santa  Fe  Railway  5  per  cent  non- 
cumulative  preferred. 

This  issue  has  preference  over  the  common  stock  as 
to  assets,  up  to  its  par  value,  and  also  as  to  non-cumu- 
lative dividends  not  exceeding  5%  per  annum.  No  new 
mortgage  or  other  bond  or  stock  obligation  can  be  cre- 
ated without  the  consent  of  "a  majority  of  all  the  pre- 
ferred stock  and  all  the  common  stock  represented  at  a 
meeting"  called  to  vote  on  such  a  proposition.  Both 
preferred  and  common  stock  have  equal  voting  power. 

It  will  be  noted  that  in  this  case,  the  preferred  stock- 
holders have  but  slight  protection  as  against  the  wishes 


132  How  to  Invest  Money  Wisely 

of  the  common  stockholders  in  the  event  of  questions 
like  the  above  arising.  The  common  stock  has  been 
many  times  increased  in  recent  years,  and  is  today  in 
excess  of  $170,000,000,  so  that  the  solid  vote  of  all  the 
preferred  holders  against  a  proposition  to  create  further 
mortgage  indebtedness,  would  not  prevent  such  indebt- 
edness from  being  created.  The  limit  of  the  preferred 
stock  is  $131,486,000,  and  at  the  time  of  organization 
the  common  stock  outstanding  amounted  to  less  than 
$103,000,000,  or  under  50%  of  the  whole.  But  today, 
the  common  stockholders  control  the  policy  of  the  com- 
pany. The  preferred  stock  has  paid  dividends  regularly 
since  1900.  The  highest  this  stock  has  sold  within  the 
past  decade  has  been  106^4  in  1909;  the  lowest,  78  in 
1907. 


Baltimore  &  Ohio  Railroad    /  per  cent  non- cumulative 
preferred. 

This  stock  has  preference  as  to  assets  up  to  its  par 
value,  and  to  4%  non-cumulative  dividends.  New  mort- 
gages may  be  created  by  majority  vote  of  both  classes  of 
stock,  each  issue  having  equal  voting  power.  As  the 
common  stock  is  in  a  large  majority,  it  will  be  seen 
that  the  preferred  issue  does  not  control  the  financial 
policy  of  the  company.  Dividends  at  the  full  rate  have 
been  paid  since  1900.  During  the  past  ten  years  the 
stock  has  sold  as  high  as  100  in  1905,  and  as  low  as  75 
in  1907. 


Railroad  Preferred  Stocks  as  Investments     133 

Chicago    &    North     Western    Railway    non-cumulative 
preferred. 

The  preferred  issue  has  preference  to  dividends  up  to 
7%  per  annum,  after  which  the  common  stock  is  en- 
titled to  7% ;  when  the  common  has  received  7%,  then 
the  preferred  has  preference  to  3%  more;  and  after 
each  class  of  stock  has  in  any  one  year  received  10% 
dividends,  then  if  there  are  any  further  earnings  avail- 
able for  dividends,  each  class  of  stock  is  to  share  alike  in 
any  further  distribution.  As  the  authorized  amount  of 
preferred  is  only  $22,298,955,  and  the  common  much 
heavier,  the  financial  policy  of  the  company  is  in  the 
hands  of  the  latter.  The  preferred  stock  has  received 
S%  per  annum  since  1902,  but  the  common  has  never 
received  more  than  7%.  Since  1901  the  preferred  has 
sold  as  high  as  270  in  1906,  and  as  low  as  185  in  1907. 

Chicago,   St.   Paul,   Minneapolis  &    Omaha   /  per  cent 
non-cumulative  preferred. 

This  stock  has  preference  to  7%  non-cumulative  divi- 
dends, after  which  the  common  is  entitled  to  7% ;  when 
both  issues  have  received  7%,  both  stocks  share  alike 
in  any  further  division  of  earnings.  Both  issues  have 
equal  voting  power  and  the  common  stock  controls.  The 
full  7%  dividend  has  been  paid  for  many  years.  The 
highest  price  within  the  past  ten  years  was  210  in  1902, 
and  the  lowest,  137^  in  1907. 


1-54  How  to   Invest   Money   Wisely 


Chicago,   Milwaukee  &   St.   Paul  Railway   /    per  cent 
non-cumulative  preferred. 

The  stock  has  preference  to  7%  non-cumulative  divi- 
dends, after  which  the  common  is  to  receive  7%,  all  fur- 
ther dividend  disbursements  to  be  divided  equally  be- 
tween the  two  classes.  Both  stocks  have  equal  voting 
power  and  the  amount  outstanding  is  the  same.  The 
stock  reached  the  highest  price  of  the  decade  in  1906 
when  it  sold  at  218,  and  the  lowest,  130  in  1907 

Erie  Railroad  first  and  second  preferred. 

The  first  preferred  has  first  preference  as  to  assets 
and  to  4%  non-cumulative  dividends ;  the  second  pre- 
ferred following,  with  all  additional  earnings  going  to 
the  common  stock.  All  stocks  have  equal  voting  power, 
but  it  is  provided  that  no  additional  mortgage  can  be 
placed  on  the  property,  nor  the  amounts  of  preferred 
stock  increased,  without  the  vote  of  at  least  one-half  of 
the  two  preferred  stocks,  and  one-half  of  such  of  the 
common  stock  as  may  be  represented  at  a  meeting.  Fur- 
thermore, the  general  voting  rights  are  shared  with  the 
bondholders  of  the  prior  lien  and  general  lien  bonds ; 
each  bond  of  a  par  value  of  $1,000  having  ten  votes. 
As  these  two  bond  issues  aggregate  over  $70,000,000, 
and  will  ultimately  aggregate  much  more,  they  practi- 
cally control  the  financial  policy  of  the  company  jointly 
with  the  first  preferred  stock.  (The  Erie  preferred 
stocks  are  in  no  sense  "investments"  at  the  present  time, 


Railroad  Preferred  Stocks  as  Investments     1  :>."). 

but  they  are  included  in  this  list  to  show  their  peculiar 
position  in  relation  to  other  securities  on  the  system. ) 

Pittsburgh,    Cincinnati,    Chicago   &    St.    Louis    AJ<//7,v</Y 
preferred. 

The  stock  is  non-cumulative  and  entitled  to  4%  per 
annum  out  of  earnings  as  declared  by  the  board,  with 
the  right,  after  3%  has  been  paid  on  the  common,  to 
pay  \%  additional,  making  S%  in  all.  After  5%  has 
been  paid  on  both  classes,  then  they  share  pro  rata  in 
any  further  distribution.  Both  classes  have  equal  voting 
power,  and  the  common,  which  is  in  the  majority,  con- 
trols the  policy  of  the  company.  From  1902  to  1906. 
4%  was  paid  on  the  preferred ;  since  which  year  the  rate 
has  been  5%.  The  highest  quotation  since  1905  was 
\\6l/4  in  1909;  the  lowest,  69*/2  in  1907. 

Reading  Company  preferred  stocks. 

First  preferred  has  first  preference  as  to  4%  non- 
cumulative  dividends;  second  preferred  follows,  and 
common  receives  all  further  divisible  earnings.  All 
classes  of  stock  have  equal  voting  power,  but  no  addi- 
tional mortgage  can  be  placed  on  the  property,  nor  can 
the  first  preferred  stock  be  increased  without  the  con- 
sent of  a  majority  of  all  three  classes.  The  company 
also  has  the  right,  at  its  discretion,  to  convert  the  second 
preferred,  one-half  into  first  preferred  and  one-half 
into  common,  or  may  retire  either  or  both  classes  of  pre- 


136  How  to  Invest  Money  Wisely 

ferred  at  par  at  any  time.  Full  dividends  have  been  paid 
on  the  first  preferred  since  1900  and  on  the  second  pre- 
ferred since  1903.  The  first  preferred  sold  up  to  106 
in  1909  and  down  to  73  in  1907.  The  second  preferred 
to  117 y2  in  1909,  and  67  in  1907. 


Rock  Island  Company  preferred. 

This  stock  has  preference  as  to  assets  up  to  its  par 
value  and  also  to  non-cumulative  dividends  of  4%  per 
annum  yearly  until  and  including  1909;  5%  yearly  from 
1910  to  1916;  6%  yearly  thereafter.  The  preferred 
stock  can  only  be  increased  with  the  consent  of  two- 
thirds  of  the  outstanding  issues  of  both  classes  of  stock, 
but  as  the  common  stock  is  much  the  larger  issue,  the 
preferred  could  be  increased  by  full  vote  of  the  common 
combined  with  a  majority  of  the  preferred.  In  voting 
power,  however,  the  preferred  stockholders  have  the 
advantage,  as  they  are  entitled  to  elect  a  majority  of  the 
board  of  directors  of  the  company.  (Rock  Island  pre- 
ferred is  not,  of  course,  to  be  classed  as  an  "investment" 
at  the  present  time.  No  dividends  have  been  paid  since 
1905.) 

Seaboard  Air  Line  Railway  preferred 

Has  preference  as  to  4%  non-cumulative  dividends ; 
then  the  common  is  to  receive  4%  ;  then  the  preferred  is 
to  receive  2%  additional,  after  which  common  is  entitled 
to  all  further  dividends.  Roth  classes  have  equal  voting 


Railroad  Preferred  Stocks  as  Investments     137 

power.     No  dividends  have  yet  been  paid  on  the  pre- 
ferred, and  it  is  not  in  the  investment  class. 

The  above  is  of  course  a  very  limited  list  of  preferred 
railroad  stocks,  but  these  selections  have  been  made  to 
show  the  distinct  characteristics  of  different  issues. 
Many  people  purchase  preferred  stocks  without  really 
knowing  to  what  degree  they  are  "preferred"  and  as- 
sume that  no  qualifying  factors  can  enter  in.  But  as  the 
above  descriptions  indicate,  it  might  almost  be  said  that 
no  two  preferred  issues  are  exactly  alike,  and  that  where 
one  issue  is  definitely  entitled  to  a  certain  preference  as 
to  dividends  or  other  advantage,  another's  preference  is 
qualified  to  a  more  or  less  degree,  or  may  really  be 
stronger  than  appears  on  the  surface.  Thus  a  stock  like 
St.  Paul  preferred,  while  having  first  preference  to  7%, 
is  entitled  to  share  in  additional  dividends  after  the  com- 
mon has  received  7%.  This  gives  St.  Paul  preferred  a 
direct  potential  interest  in  the  future  growth  of  the  prop- 
erty and  of  course  is  a  factor  in  keeping  the  price  of  the 
stock  relatively  high. 


XVI 

Guaranteed  Railroad  Stocks  as 
Investments 

A  TYPE  of  investment  issue  which  generally 
stands  upon  a  high  plane,  but  regarding  which 
very  little  reference  is  made  in  ordinary  finan- 
cial literature,  are  stocks  whose  dividends  are  per- 
manently guaranteed  by  some  railroad  or  other  cor- 
poration. A  guaranteed  stock  may  be  either  common  or 
preferred.  In  nearly  all  cases  a  stock  carrying  the  guar- 
anty of  some  other  company  has  been  originally  issued 
without  such  guaranty,  the  latter  characteristic  coming 
about  as  the  result  of  a  merger,  acquisition  of  control, 
or  other  arrangement  based  on  the  lease  of  the  property. 
Many  companies  are  of  course  leased  in  other  ways, 
some  being  guaranteed  a  fixed  rental,  which  may  or  may 
not  be  sufficient  to  equal  a  stock  dividend,  and  may  cover 
only  interest  on  bonds ;  others  are  leased  on  a  basis  of  a 
percentage  of  gross  or  net  receipts,  and  still  others  on  a 
basis  which  involves  a  definite  guaranty  of  a  fixed  divi- 
dend. 

Below  I  furnish  facts  regarding  several  of  the  best 
guaranteed  railroad  stocks,  which  are  regularly  quoted 
in  the  financial  markets  at  the  present  time. 

(139) 


140  How  to  Invest  Money  Wisely 

Albany  &  Susquehanna  R.R.  Guaranteed  Stock. 

Capital  stock,  $3,500,000;  par,  $100.  Leased  to  Del. 
&  Hud.  Co.  from  February  24,  1870,  in  perpetuity,  rental 
being  interest  on  bonds,  and  dividends  on  stock  at  rate  of 
7%  per  annum  until  July,  1902,  and  9%  per  annum 
thereafter,  but  courts  have  held  that  stock  is  entitled  to 
benefit  of  refunding  of  bonds  in  1906,  and  3.45%  extra 
is  paid  each  year,  making  12.45%  in  all. 


Atlanta  &  Charlotte  Air  Line  Ry.    Guaranteed  Stock. 

Capital  stock,  $1,700,000;  par,  $100.  Operated  by 
Southern  Ry.  Co.  under  99-year  contract,  dated  April 
1,  1881,  which  calls  for  payment  of  interest  on  bonds, 
organization  expenses  and  minimum  of  5%  on  stock; 
dividends  to  be  increased  to  6%  should  earnings  exceed 
$1,500,000,  and  to  7%  should  they  exceed  $2,500,000  in 
any  one  year.  Dividends  have  been  paid  as  follows: 
1881  to  1889,  inclusive,  5%  per  annum;  1890,  Sl/2%\ 
1891  to  March,  1901,  inclusive,  6%  per  annum;  7%  per 
annum  since. 


Beech  Creek  R.R.  4%  Guaranteed  Stock. 

Capital  stock,  $6,000,000;  par,  $50.  Leased  to  N.  Y. 
C.  &  Hudson  R.R.  for  999  years,  from  October  1,  1890, 
at  rental  of  interest  on  bonds  and  4%  on  stock.  Divi- 
dends quarterly,  January  1,  at  Grand  Central  Station, 
New  York. 


Guaranteed  Stocks  as  Investments  141 

Cleveland  &  Pittsburg  R.R.  Guaranteed  Stocks. 

Capital  stock,  $11,247,593  7%  guaranteed  stock  and 
$9,853,050  4%  guaranteed  special  betterment  stock ;  par, 
$50.  The  special  betterment  stock  is  issuable  for  im- 
provements and  is  subordinate  to  the  original  stock  as  to 
dividends  only.  Leased  for  999  years,  from  December 
1,  1871,  to  Penna.  R.R. ;  lease  transferred  to  Penna.  Co., 
April  14,  1873 ;  rental  7%  on  stock,  interest  on  bonds, 
sinking  fund,  and  $10,000  for  organization  expenses. 

Concord  &  Montreal  R.R.  7%  Guaranteed  Stock. 

Capital  stock,  $7,857,600;  par,  $100;  divided  into  four 
classes  as  follows :  $800,000  class  1 ;  $540,400  class  2 ; 
$459,600  class  3;  $6,057,600  class  4.  Leased  together 
with  its  proprietary,  controlled,  and  leased  lines  to 
Boston  &  Maine  R.R.  for  91  years,  from  April  1,  1895; 
lease  to  go  to  Boston  &  Lowell  R.R.  in  case  same  termi- 
nates before  91  years  have  elapsed.  Lessee  assumed  all 
the  liabilities,  and  by  agreement  pays  7%  on  stocks  as 
rental. 


Connecticut  River  R.R.  10%   Guaranteed  Stock. 

Capital  stock  authorized,  $3,670,300;  outstanding, 
$3,113,000;  par,  $100.  Leased  to  Boston  &  Maine  R.R. 
for  99  years,  from  January  1,  1893,  at  rental  of  10% 
per  annum  on  stock,  interest  on  bonds  and  $2,000  for 
organization  expenses. 


142  How  to  Invest  Money  Wisely 

Erie  &  Pittsburg  R.R.  7%  Guaranteed  Stocks. 

Capital  stock  outstanding,  $2,000,000  original  7% 
guaranteed  stock,  and  $1,469,450  (auth.  $2,500,000) 
special  7%  guaranteed  betterment  stock  ;  par,  $50. 
Leased  for  999  years,  from  March  1,  1870,  to  Penna. 
R.R.,  and  lease  subsequently  assigned  to  Penna.  Co. 
Rental,  interest  on  bonds,  7%  per  annum  on  capital 
stock,  and  $2,500  for  organization  purposes.  An  allow- 
ance, amounting  to  about  51  cents  per  share,  for  Penna. 
State  tax,  must  be  made  in  the  net  returns. 

Georgia  R.R.  &  Banking  Co.   11%   Guaranteed  Stock. 

Capital  stock,  $4,200,000;  par,  $100.  The  railroad 
was  leased  May  7,  1881,  for  99  years,  to  W.  M.  Wadley, 
at  a  rental  of  $600,000  per  annum,  but  in  April,  1899, 
the  Louisville  acquired  all  rights  under  the  lease  and  in 
July,  1899,  the  Atlantic  Coast  Line  acquired  a  half  in- 
terest. As  security  for  the  performance  of  the  terms  of 
the  lease  this  company  holds  $500,000  5%  bonds  of  the 
So.  &  No.  Ala.  R.R.  and  a  like  amount  of  first  4s  of  the 
Atlantic  Coast  Line  R.R.  of  S.  C.  Dividends,  11%  per 
annum,  quarterly,  January  15,  at  Georgia  Railroad  Bank, 
Augusta,  Ga.  This  rate  has  been  paid  since  1889;  prior 
to  that  date,  rate  ranged  from  9%  to 


Little  Miami  R.R.  8%  Guaranteed  Stock. 

Capital  stock,  $4,943,100  common  and  $3,700,500  spe- 
cial betterment  stock;  par,  $50.     Leased   for  99  years, 


Guaranteed  Stocks  as  Investments 


from  December  1,  1869,  to  Pitts.,  Cin.  &  St.  L.  Ry.  (now 
P.,  C,  C.  &  St.  L.  Ry.),  with  permanent  renewal,  at 
rental  of  interest  on  bonds,  rentals  of  leased  lines,  8% 
per  annum  on  stock,  and  $5,000  for  maintenance  of  or- 
ganization. The  Penna.  R.R.  is  a  party  to  the  lease,  and 
guarantees  its  faithful  execution.  Dividends  quarterly, 
March  10,  at  41  East  4th  St.,  Cincinnati.  From  Decem- 
ber, 1899,  Y^%  extra  has  been  paid  semi-annually  (July 
and  December)  from  invested  surplus  fund,  making 
&2A%  per  annum.  Dividends  of  4%  per  annum  are  paid 
on  the  special  betterment  stock. 

Morris  &  Essex  R.R.  7%  Guaranteed  Stock. 

Capital  stock,  $15,000,000;  par,  $50.  Leased  in  1868 
to  Del.,  Lack.  &  West.  R.R.,  in  perpetuity,  the  lessee  as- 
suming all  liabilities  and  agreeing  to  pay  interest  on 
bonds  and  7%  on  stock.  The  valuable  terminal  facilities 
in  N.  Y.  Harbor  of  the  D.,  L.  &  W.  system  are  owned 
by  this  company.  Dividends  January  and  July,  at  26 
Exchange  Place,  New  York. 

Old  Colony  R.R.  j%  Guaranteed  Stock. 

Capital  stock,  authorized  and  outstanding,  $21,165,- 
125  ;  par,  $100.  Leased  to  N.  Y.,  N.  Haven  &  Hartford 
R.R.  for  99  years,  from  March  1,  1893,  at  rental  of  7% 
per  annum  on  stock,  lessee  assuming  all  liabilities.  Divi- 
dends quarterly,  January,  at  company's  office,  South 
Term.  Station,  Boston. 


144  How  to  Invest  Money  Wisely 

Pittsburg,  Fort  Wayne  &  Chicago  Ry.  7%  Guaranteed 

Stock. 

Capital  stock,  $44,694,600  special  improvement  and 
$19,714,286  general  stock;  par,  $100.  The  former  is 
subject  to  the  general  stock,  and  is  issued  to  the  Penna. 
R.R.  for  improvements.  Leased,  in  perpetuity,  from 
July  1,  1869,  to  the  Penna.  R.R.  at  rental  of  interest  and 
sinking  fund  of  debt,  and  7%  per  annum  on  both  classes 
of  stock.  Lease  assigned  to  Penna.  Co.,  lessee  assum- 
ing all  obligations  of  the  lessor. 

Pittsburg,  McKeesport  &   Youghiogheny  R.R.  6% 
Guaranteed  Stock. 

Capital  stock  authorized,  $4,000,000;  outstanding, 
$3,959,650;  par,  $50.  Leased  for  999  years  to  Pittsburg 
&  Lake  Erie  R.R.  from  August  3,  1881,  at  rental  of  6% 
per  annum  on  stock,  and  guaranty  of  principal  and  in- 
terest on  bonds,  jointly  by  Pittsburg  &  Lake  Erie  and 
Lake  Shore  &  Michigan  Southern  Cos.,  the  guaranty 
being  endorsed  on  both  bonds  and  stock  certificates. 
The  stock  guaranty  contains  the  proviso  that  the  holder 
shall  accept  par  for  stock  on  July  1,  1934. 


XVII 

Industrial  Preferred  Stocks  as  Investments 

IN  an  earlier  chapter  I  made  some  extended  reference 
to  preferred  stocks  of  railroads  as  investments,  and 
in  some  detail  described  the  varying  terms  of  dif- 
ferent issues.    I  will  now  go  into  the  subject  of  industrial 
preferred   issues,   which,   while   in  many  cases   fully  as 
secure  as  seasoned  preferred  stocks  of  railroads,  have 
characteristics  of  their  own. 

Speaking  broadly,  industrial  preferred  stocks  are  a 
purely  modern  product.  Prior  to  1899  there  were  but 
few  large  industrial  corporations  or  "trusts"  in  exist- 
ence, and  while  a  number  of  large  concerns,  such  as  the 
American  Sugar  Refining  Company  and  the  old  Ameri- 
can Tobacco  Company  had  been  notably  successful  in 
showing  large  profits  for  from  five  to  ten  years,  yet  even 
the  best  protected  issues  in  the  "industrial"  field  were 
avoided  by  careful  investors,  and  many  speculative  com- 
mon stocks  of  railroads  were  given  preference  over  them. 
Even  after  the  consolidation  period  of  1898  to  1902  had 
passed,  and  there  were  dozens  of  industrial  stocks  pay- 
ing large  dividends  and  earning  these  dividends  two  or 
three  times  over,  very  few  were  recommended  in  any 

(  145  ) 


146  How  to  Invest  Money  Wisely 

sense  as  investments,  although  they  were  actively  traded 
in  in  the  speculative  stock  market. 

There  were  good  reasons  for  this  apparent  tardiness 
in  recognizing  investment  values  in  industrial  preferred 
stocks  ten  or  twelve  years  ago.  In  the  first  place,  nearly 
all  the  industrial  trusts  were  capitalized  on  heavily  in- 
flated bases;  the  preferred  stocks  usually  representing 
simply  the  appraised  values  of  the  plants  absorbed, 
and  the  common  stocks  representing  merely  voting 
power,  "good  will"  and  ''water."  And  no  doubt  in 
many  cases  these  appraised  valuations  were  very  high, 
and  the  real  intrinsic  worth  of  the  properties  at  the  start 
was  in  many  cases  less  than  75  per  cent  of  the  amount 
of  preferred  stock  outstanding.  And  further  than  this, 
all  of  these  combinations  at  the  start  were  in  a  purely 
experimental  stage.  While  the  promoters,  in  putting 
through  the  combinations,  usually  furnished  estimates  to 
show  that  the  net  profits  would  be  enormously  increased 
because  of  the  consolidation,  yet  this  fact  had  to  be 
demonstrated  before  the  security  of  the  issues  could  be 
granted.  A  few  years'  experience  showed  very  clearly 
that  the  estimates  of  the  promoters  were  in  most  cases 
wide  of  the  mark,  and  that  not  only  was  it  impossible  to 
increase  earnings  in  anything  like  the  ratios  promised, 
but  the  great  majority  of  "trusts"  were  obliged  to 
promptly  secure  increased  working  capital  through  the 
issue  of  bonds  or  more  stock.  Like  the  railroads  in  the 
70s  and  '80s,  nearly  all  corporations  of  this  type  were 
on  "probation,"  and  their  securities  had  in  no  sense 
become  "seasoned." 


Industrial  Preferred  Stocks  as  Investments    1  1  < 

Hut  since  that  day  more  than  a  decade  has  gone  by. 
In  this  stretch  of  time  we  have  had  a  period  of  pro- 
nounced prosperity  and  one  of  extreme  trade  reaction 
and  depression.  These  companies  have,  in  many  in- 
stances, gone  through  a  panic  successfully,  and  have 
records  back  of  them  in  earning  power,  management  and 
general  growth  which  has  had  the  result  of  placing  many 
issues  in  the  class  of  "seasoned  stock  investments." 

On  the  following  pages  I  list  and  describe  some  of  the 
leading  listed  preferred  issues  in  the  industrial  field,  which, 
it  seems  to  me,  have  well  stood  the  test  of  time,  and 
demonstrated  their  investment  worth.  Of  course,  their 
period  of  probation  has  not  been  as  long  as  that  of  the 
railroads,  and  the  best  industrial  is  not  to  be  regarded 
as  on  as  high  an  investment  plane  as  the  best  railroad. 
But  this  difference  is  well  reflected  in  the  different  mar- 
ket prices  of  the  two  classes  of  stock. 

I  have  not  included  all  good  preferred  issues,  but  only 
the  leading  active  ones  which  are  listed  on  the  New 
York  Stock  Exchange.  I  have  also,  for  the  most  part, 
confined  the  list  to  those  which  have  been  in  existence 
a  decade  or  more,  and  which  have  paid  their  preferred 
dividends  uninterruptedly,  at  the  full  rate,  during  the 
entire  period. 

American  Smelting  &  Refining  7%  cumulative 
preferred. 

Outstanding  issue,  $50,000,000;  par  $100.  Has 
preference  as  to  assets  and  7%  cumulative  dividends,  all 


148  How  to  Invest   Money  Wisely 

remaining  earnings  going  to  the  common.  Also  has  full 
voting  power.  Full  dividends  have  been  paid  in  every 
year  since  the  organization  of  the  company  in  April, 
1899.  Earnings  for  year  to  April  30,  1911,  equaled 
13.33%  on  this  stock,  as  compared  with  14.09%  the  pre- 
vious year.  Since  1906  the  stock  has  sold  as  high  as 
1173/6  and  as  low  as  813/4.  There  seems  no  reason,  in 
view  of  the  demonstrated  permanent  earning  power, 
why  the  full  dividends  should  not  continue  for  many 
years  to  come. 

American  Agricultural  Chemical  6%   cumulative 
preferred. 

Outstanding,  $19,288,000;  par  $100.  Has  preference 
as  to  assets  and  6%  cumulative  dividends,  and  also  has 
full  voting  power.  Full  rate  of  6%  has  been  paid  on 
preferred  since  1899.  Earnings  applicable  to  preferred 
stock  in  recent  years  have  been  as  follows:  1905,  9.3%  ; 
1906,  10.1%;  1907,  12%;  1908,  11.2%;  1909,  12.1%; 
1910,  13.9%.  Since  1905  the  stock  has  sold  as  high  as 
103  and  as  low  as  75  (in  1907). 

The  equity  back  of  this  issue  is  very  heavy,  and  the 
stock  looks  very  attractive  around  its  par  value  as  a 
permanent  investment. 

American  Beet  Sugar  6%  non-cumulative  preferred. 

Outstanding,  $5,000,000;  par  $100.  Has  preference 
as  to  assets  and  6%  non-cumulative  dividends ;  also 
has  full  voting  power.  Full  dividends  have  been 


.   Industrial  Preferred  Stocks  as  Investments    14!) 

paid  since  the  organization  of  the  company  in  March, 
1899.  Earnings  in  recent  years,  applicable  to  preferred 
dividends  have  been  as  follows:  Year  ended  March  31, 
1907-8,  17.64%;  1908-9,  25.86%;  1909-10,  25.86%; 
1910-11,  38.75%.  While  this  stock  is  non-cumulative, 
yet  it  seems  fully  worth  its  face  value,  in  view  of  the 
smallness  of  the  issue,  and  of  the  excellent  average 
showing  made  by  the  company  during  the  decade. 

American  Car  &  Foundry  7%  non-cumulative 
preferred. 

Outstanding,  $30,000,000;  par  $100.  Has  pref- 
erence as  to  assets  and  7%  non-cumulative  dividends; 
also  has  full  voting  power.  Full  dividends  liave  been 
paid  since  the  organization  of  the  company  in  1899. 
Earnings  on  this  issue  during  recent  years  have  been  as 
follows:  1907-8,  29.87%;  1908-9,  9.65%;  1909-10, 
13.63%;  1910-11,  14.11%.  While  the  earnings  in  this 
type  of  business  tend  to  wider  fluctuations  than  in  some 
other  lines,  yet  the  preferred  stock  is  clearly  well 
protected. 

American  Sugar  Refining  7%  cumulative  preferred. 

Outstanding,  $45,000,000;  par  $100.  Has  preference 
as  to  7%  cumulative  dividends;  but  is  not  preferred  as 
to  assets.  Dividends  at  the  full  rate  have  been  paid  on 
this  issue  since  the  organization  of  the  company  21  years 
ago.  While  there  is  no  preference  as  to  assets,  yet  the 


!.")()  How  to  Invest  Money  Wisely 

earning  power  of  this  concern,  through  good  times  and 
bad,  is  so  heavy  that  the  preferred  issue  should  be  re- 
garded as  a  permanent  dividend  payer.  Even  the  aboli- 
tion of  the  tariff,  while  it  would  injure  the  position  of 
the  common  stock,  would  not  reduce  earnings  suffi- 
ciently to  affect  the  preferred.  In  recent  years,  the  per- 
centages earned  on  the  preferred  have  been  as  follows: 
1907,  19.44%;  1908,  14.45%;  1909,  24.05%;  1910, 
14.18%;  1911,  31.29%. 

E.  I.  du  Pont  de  Nemours  Powder  Co.  5%  cumulative 
preferred. 

Outstanding,  $16,068,801 ;  par  $100.  Has  preference 
as  to  assets  and  5%  cumulative  dividends.  The  full  rate 
of  5%  has  been  paid  on  the  issue  since  it  was  created  in 
1903.  In  recent  years  the  net  earnings  applicable  to 
this  dividend  have  been  as  follows:  1908,  26.11% ;  1909, 
36.14%;  1910,  34.42%;  1911,  36.75%.  The  remarkable 
earning  power  of  this  company  makes  this  stock  most 
attractive  as  an  investment. 

General  Chemical  Co.  6%  cumulative  preferred. 

Outstanding,  $12,500,000;  par  $100.  Has  preference 
as  to  assets  and  to  6%  cumulative  dividends.  The  full 
dividend  has  been  paid  in  every  year  during  the  past 
decade.  Earnings  on  the  issue  since  1907  have  been  as 
follows:  1908,  11.16%;  1909,  17.12%;  1910,  18.73%; 
1911,  18.88%.  Since  1906  the  stock  has  sold  as  high  as 


Industrial  Preferred  Stocks  as  Investments    151 

108  and  as  low  as  85.  In  view  of  the  stability  shown 
by  this  concern  for  many  years,  the  preferred  stock 
should  be  regarded  as  a  most  desirable  investment. 

International  Harvester  7%  cumulative  preferred. 

Outstanding,  $60,000,000;  par  $100.  Has  preference 
as  to  assets  and  7%  cumulative  dividends.  The  full 
dividend  has  been  regularly  paid  ever  since  the  creation 
of  the  preferred  issue  in  1907.  Prior  to  that  date,  the 
entire  stock  was  one  class,  on  which  3%  was  paid  in 
1903  and  4%  from  1904  to  1906.  Earnings  on  this  pre- 
ferred issue  since  1906  have  been  as  follows :  1907, 
13.47%;  1908,  14.81%;  1909,  24.82%;  1910,  26.81%; 
1911,  25.87%. 

National  Biscuit  7%  cumulative  preferred. 

Outstanding,  $24,804,500;  par  $100.  Has  preference 
as  to  assets  and  7%  cumulative  dividends.  This  com- 
pany was  formed  in  1898,  and  the  full  rate  has  been  paid 
on  the  preferred  stock  in  every  year  since  that  date. 
Earnings  on  this  stock  in  recent  years  have  been  as  fol- 
lows: Year  ended  Jan.  1,  1908,  16.53%;  1909,  15.71%; 
1910,  16.04%;  1911,  18.62%;  1912,  18.84%. 

Pressed  Steel  Car  /%  non-cumulative  preferred. 

Outstanding,  $12,500,000;  par  $100.  Has  preference 
as  to  assets  and  to  7%  non-cumulative  dividends.  The 
full  rate  of  7%  has  been  paid  on  this  issue  since  the 
organization  of  the  company  in  1899.  Earnings  on  the 


152  How  to   Invest   Money   Wisely 

stock  during  recent  years  have  been  as  follows:    1908, 
;  1909,  14.68%;  1910,  12.55%;  1911,  7.14%. 


Railway  Steel  Spring  7%  cumulative  preferred. 

Outstanding,  $13,500,000;  par  $100.  Has  preference 
as  to  assets  and  7%  cumulative  dividends.  The  full 
rate  has  been  paid  on  the  issue  since  the  organization  of 
the  company  in  1902.  In  recent  years,  earnings  on  this 
stock  have  been  as  follows:  1908,  5.67%  ;  1909,  12.32%  ; 
1910,  13.00%;  1911,  7.22%.  Since  1907  the  stock  has 
sold  as  high  as  109  and  as  low  as  72. 

United  States  Steel  Corporation  7%  cumulative  preferred. 

Outstanding,  $360,281,100;  par  $100.  Has  preference 
as  to  assets  and  7%  cumulative  dividends.  The  full  rate 
has  been  paid  in  every  year  since  the  organization  of  the 
company  in  1901.  Earnings  on  this  stock  in  recent  years 
have  been  as  follows  :  1907,  20.02%  ;  1908,  12.69%  ;  1909, 
21.91%;  1910,  24.26%;  1911,  14.78%.  Since  1906  the 
issue  has  sold  as  high  as  131,  and  as  low  as  79*4- 

Virginia  Carolina  Chemical  8%  cumulative  preferred. 

Outstanding,  $20,000,000;  par  $100.  Has  preference 
as  to  assets  and  8%  cumulative  dividends.  The  full  rate 
of  8%  per  annum  has  been  paid  on  this  stock  ever  since 
the  formation  of  the  company  over  sixteen  years  ago. 
Earnings  on  the  issue  in  recent  years  have  been  as  fol- 
lows: Year  ended  May  31,  1908,  14.35%  ;  1909,  19.06%  : 


Industrial  Preferred  Stocks  as  Investments    !."»:{ 

1910,  24.20%;   1911,   12.83%.     In  price,  the  stock  has 
sold,  since  1906,  as  high  as  129*4  and  as  low  as  75. 

While  none  of  these  stocks  are  today  selling  near  their 
low  figures  of  1907,  yet  practically  all  are  far  below  the 
highest  figures  which  they  have  reached  within  the  past 
five  years.  It  may  not  be  the  best  time  for  making  in- 
vestments in  stocks  of  this  general  character,  but  it  is 
certainly  not  the  poorest  time.  For  a  man  who  wished 
to  distribute  a  given  sum  among  industrial  preferred 
stocks,  however,  the  above  list  would  be  about  as  good 
as  could  be  selected,  taking  into  consideration  past  rec- 
ord, demonstrated  earning  power,  marketability,  etc. 
Such  an  investment,  distributed  within  the  limits  of  this 
list,  would,  at  recent  market  prices,  yield  the  following 
net  result : 


American  Smelting  and  Ref.  7%  preferred,  .at  108,     yields  6.48% 

Amer.  Agri.  Chemical  6%  preferred at  102^,      "      5.85% 

American  Beet  Sugar  6%  preferred at   98^4,      "     6.10% 


Amer.  Car  &  Foundry  7%  preferred at  115, 

Amer.  Sugar  Refining  7%  preferred at  120, 

E.  I.  du  Pont  De  Nemours  5%  preferred at   98, 

General  Chemical  Co.  6%  preferred at  108, 

International  Harvester  Co.  7%  preferred. .  .at  120, 

National  Biscuit  Co.  7%  preferred at  128, 

Pressed  Steel  Car  7%  preferred at  103, 

Railway  Steel  Spring  7%  preferred at  104, 

United  States  Steel  7%  preferred at  112, 

Virginia  Car.  Chem.  8%  preferred at  116, 


6.10% 
5.80% 
5.13% 


5.55% 
5.80% 

5.47% 


6.80% 
6.73% 
6.25  % 
6.90% 


If  a  sum  were  invested  in  the  above  stocks  in  equal 
amounts,  the  net  yield  on  the  total  would  be  about 
6.10%. 


XVIII 

Unlisted   Industrial  Preferred  Stocks  as 
Investments 

WITH  the  demand  which  has  come  in  within  the 
past  few  years  for  a  larger  net  return  on  the 
investor's  money,  the  popularity  of  industrial 
preferred  stocks,  paying  from  6  per  cent  to  8  per  cent, 
has  rapidly  increased.  Indeed,  the  demand  for  invest- 
ment issues  of  this  type  has  been  sufficient  to  absorb  an 
ever-increasing  number  of  such  issues,  and  within  the 
past  two  or  three  years  we  have  witnessed  the  formation 
of  many  corporations  of  large  capital  whose  preferred 
stocks  have  come  upon  the  market.  As  a  general  thing, 
issues  of  this  type  are  dealt  in  in  the  "outside"  or  curb 
market,  or  else  are  sold  only  by  private  sale,  "over  the 
counter." 

In  this  new  investment  field,  there  are  many  attractive 
opportunities,  but  at  the  same  time  the  pitfalls  are  many, 
and  it  is  usually  an  extremely  dangerous  thing  for  the 
average  investor  to  put  much  money  into  a  preferred 
industrial  unless  he  is  intelligently  advised.  As  in  the 
case  of  other  investment  fields,  securities  of  this  type 
should  undergo  the  various  tests  of  stability,  earning 

(155) 


156  How  to   Invest   Money  Wisely 

power,   financial   soundness,   character   of   management, 
character  of  business  done,  etc. 

Among  the  issues,  which,  in  my  opinion,  pass  the  best 
investment  tests,  and  look  attractive  as  permanent  invest- 
ments, are  the  following : 

Selling 
around 

American  Bank  Note  6%  preferred  (par  $50) 52 

American  Chicle  Co.  6%  preferred  (par  $100) 106 

American  Radiator  Co.  1%  preferred  (par  $100) 130 

American  Type  Founders  Co.  1%  preferred 100 

Borden's  Condensed  Milk  6%  preferred 110 

H.  B.  Claflin  Co.  first  preferred,  5% 90 

Childs  (Restaurant)  Co.  preferred,  1% 110 

du  Pont  Powder  Co.  5%  preferred 93 

Eastman  Kodak  Co.  6%  preferred 128 

May  Department  Stores,  preferred,  7% 110 

National  Candy  Co.  first  preferred,  7% 109 

National  Carbon  preferred,  7% 118 

Niles,  Bement,  Pond  Co.  6%  preferred 98 

Otis  Elevator  Co.  preferred,  6% 101 

Pierce,  Butler  &  Pierce  Mfg.  Co.  preferred,  7% 103 

Pratt  &  Whitney  preferred,  6% 100 

Royal  Baking  Powder  preferred,  6% 110 

Sears,  Roebuck  Co.  preferred,  7% 123 

Underwood  Typewriter  preferred,  7% 110 

Waltham  Watch  preferred,  6% 110 

H.  R.  Worthington  Co.  preferred,  7% 107 

Of  course  all  the  above  issues  have  not  equal  standing, 
and  probably  some  are  selling  a  little  too  high  in  view  of 
the  return  on  the  money.  But  they  are  all  backed  by  very 
heavy  equities,  and  while  the  common  stocks  of  many  of 
these  same  companies  have  large  elements  of  speculation 
back  of  them,  these  preferred  issues  all  stand  on  sound 
bases.  While  not  in  the  class  of  issues  yielding  but  4^ 
to  5  per  cent,  they  appear  attractive  as  investments  of 
this  particular  type. 


XIX 

Public  Utility  Preferred  Stocks  as  Investments 

AMONG  the  types  of  investment  stocks  which  yield 
something  more  than  the  average  return,  and 
in  many  cases  have  in  addition,  considerable  po- 
tential value,  the  public  utility  holding  company  preferred 
issue  takes  a  prominent  place.     Like  the  industrial  pre- 
ferred stock,  this  is  entirely  a  modern  product  in  the  in- 
vestment field,  and  only  a  limited  number  of  issues  have 
as  yet  become  so  far  "seasoned"  as  to  be  classed  with 
higher  grade  investments. 

Nevertheless,  in  these  days,  when  it  is  so  necessary  for 
the  average  investor  to  get,  on  a  part  of  his  principal  at 
least,  a  little  better  return  than  the  high  grade  railroad 
stocks  and  bonds  accord,  it  is  certainly  worth  while  to 
give  careful  study  to  this  public  utility  field.  Therefore 
I  have  selected  a  number  of  the  stocks  in  this  class  which 
seem  to  me  to  measure  up  to  good  investment  tests,  and 
I  list  these  issues  below. 

American  Cities  Co.  6%  cumulative  preferred. 

Outstanding,  $20,513,700;  par  $100.  Callable  at  110 
and  interest.  The  company  is  a  holding  corporation, 

(157  ) 


158  How  to  Invest  Money  Wisely 

owning  the  stocks  of  a  number  of  operating  companies 
located  in  Southern  cities,  such  as  New  Orleans,  Birming- 
ham, Little  Rock,  Memphis,  etc.;  and  succeeded  the 
American  Cities  Railway  &  Light  Co.  in  1911.  The  divi- 
dend is  being  earned  with  a  good  margin  over. 

American  Gas  &  Electric  Co.  6%  cumulative  preferred. 

Outstanding,  $3,500,000;  par  $50.  Controls  about 
twenty  gas  and  electric  light  companies  operating  through- 
out the  United  States.  This  company  was  formed  in  1907 
and  the  preferred  dividends  have  been  paid  regularly  to 
date.  The  margin  of  safety  above  these  dividends  has 
always  been  heavy,  and  is  steadily  increasing. 

American  Light  &  Traction  Co.  6%  cumulative  preferred. 

Outstanding,  $14,236,200;  par  $100.  The  company 
controls  about  a  dozen  operating  companies  located  in 
different  parts  of  the  United  States.  Preferred  dividends 
have  been  regularly  paid  since  the  organization  of  the 
company  in  1901.  The  earnings  for  many  years  have 
been  several  times  the  amount  required  to  meet  this  divi- 
dend. This  is  one  of  the  very  best  of  the  public  utility 
preferred  issues  in  the  market. 

Butte  Electric  &  Power  Co.  S%  cumulative  preferred. 

Outstanding,  $1,000,000;  par  $100.  This  is  both  an 
operating  and  holding  company,  with  a  long  record  of 


Public  Utility  Preferred  Stocks  159 

success.    The  preferred  is  a  small  issue,  and  the  dividend 
has  been  earned  several  times  over  for  many  years. 


Georgia  Railway  &  Electric  Co.  5%  non-cumulative 
preferred. 

Outstanding,  $2,400,000;  par  $100.  This  is  both  an 
operating  and  holding  company,  and  controls  practically 
all  the  public  utilities  of  Atlanta,  Ga.,  and  vicinity.  The 
preferred  dividend  has  been  regularly  paid  since  1903, 
and  in  recent  years  has  been  earned  several  times  over. 


Illinois  Traction  Co.  6%  cumulative  preferred. 

Outstanding,  $6,000,000;  par  $100.  This  is  a  very 
large  corporation,  controlling  an  extensive  system  of  elec- 
tric railways  and  lighting  companies  in  the  State  of 
Illinois.  The  preferred  dividend  is  regularly  paid  and  is 
earned  several  times  over. 


Laclede  Gas  Light  Co.  5%  cumulative  preferred. 

Outstanding,  $2,500,000;  par  $100.  This  company 
controls  and  operates  the  entire  gas  lighting  business  of 
the  city  of  St.  Louis.  The  preferred  dividend  has  been 
regularly  paid  for  many  years,  and  the  earnings  are  many 
times  the  amount  required. 


160  How  to  Invest  Money  Wisely 

Milwaukee  Electric  Railway  &  Light  6%  non-cumulative 
preferred. 

Outstanding,  $4,500,000;  par  $100.  This  company 
controls  practically  all  the  street  railway  and  lighting 
properties  in  and  about  Milwaukee,  Wis.  The  operations 
have  been  very  successful  for  many  years.  The  company 
is  itself  controlled  by  the  Milwaukee  Light,  Heat  & 
Power  Co.,  which  is  one  of  the  subsidiary  corporations  of 
the  North  American  Co.  The  dividend  on  the  preferred 
stock  has  been  regularly  paid,  and  is  earned  several  times 
over. 

Minneapolis  General  Electric  Co.  6%  cumulative 
preferred. 

Outstanding,  $1,000,000;  par  $100.  This  is  one  of  the 
strong  "Stone  &  Webster"  properties,  and  controls  the 
entire  lighting  and  power  business  of  Minneapolis,  Minn. 
The  dividend  on  this  stock  has  for  many  years  been 
earned  several  times  over. 


Pacific  Gas  &  Electric  Co.  6%  cumulative  preferred. 

Outstanding,  $10,000,000;  par  $100.  This  is  a  very 
large  holding  company,  controlling  street  railways,  light- 
ing and  power  companies  in  central  California.  The 
earnings  are  heavily  in  excess  of  the  preferred  dividend 
requirement. 


Public  Utility  Preferred  Stocks  161 

Seattle  Electric  Co.  6%  non-cumulative  preferred. 

Outstanding,  $7,500,000;  par  $100.  This  is  one  of  the 
strong  "Stone  &  Webster"  properties,  operating  in  Seat- 
tle and  vicinity.  The  preferred  dividend  has  been 
regularly  paid,  and  is  earned  several  times  over. 

An  investment,  distributed  in  equal  amounts  among  the 
foregoing  public  utility  preferred  issues,  would  work  out 
as  follows  (prices  as  of  May,  1912) : 

American  Cities  6%  preferred at    80,  yields  7.50% 

American  Gas  &  Electric  6%  preferred at  par,  "  6.00% 

American  Light  &  Traction  6%  preferred at  110,  "  5.45% 

Butte  Electric  &  Power  5%  preferred at    80,  "  6.25% 

Georgia  Railway  &  Elec.  5%  preferred at    87,  "  5.75% 

Illinois  Traction  Co.  6%  preferred at    93,  "  6.45% 

Laclede  Gas  Co.  6%  preferred at  100,  "  6.00% 

Milwaukee  Elec.  Ry.  and  Light  6%  preferred,  .at  100,  "  6.00% 

Minneapolis  General  Elec.  6%  preferred at  107,  "  5.61% 

Pacific  Gas  &  Electric  6%  preferred at    92,  "  6.52% 

Seattle  Electric  Co.  6%  preferred at  103,  "  5.83% 

The  above  would  make  quite  a  widely  distributed  in- 
vestment scheme  in  this  particular  field,  as  the  companies 
selected  are  all  located  in  different  parts  of  the  country, 
and  their  success  is  dependent  to  large  degree  on  different 
influences.  The  net  average  yield  on  the  total,  if  spread 
in  even  amounts  in  the  above  issues,  would  be  about 

&&%. 


XX 

Short  Term  Investments 

THE  popularity  of  short  term  notes  and  equipment 
trusts  at  the  present  time  is  due  to  several  causes. 
With  the  apparent  permanence  of  the  high  cost  of 
living,  the  individual  investor  is  not  taking  kindly  any 
longer  to  the  long  term  high  grade  issues  which  yield  only 
4  per  cent  or  thereabouts.  If  he  has  held  many  such  for 
a  long  period,  he  probably  has  paid  more  for  them  than 
ruling  prices  and  therefore  does  not  want  any  more; 
especially  as  he  has  seen  them  recede  quite  steadily  in 
price  for  the  last  half  dozen  years.  Then  the  investor 
today  finds  it  necessary  to  get  a  better  return  on  his 
money.  The  high  commodity  prices  and  increased  cost  of 
living  must  be  met,  and  he  is  trying  to  meet  it  by  enlarg- 
ing his  income  return  in  some  way.  As  for  institutions, 
such  as  banks,  trust  companies,  etc.,  they  are  buying 
notes  and  short  term  bonds  to  keep  idle  funds  at  work. 
With  loaning  rates  as  unprofitable  as  they  have  recently 
been,  the  banks  are  finding  it  difficult  to  employ  funds 
profitably,  and  what  is  better,  therefore,  than  short  term 
securities,  well  secured,  with  an  active  market,  and  with 
but  slight  danger  from  depreciation? 

(163) 


164  How  to  Invest  Money  Wisely 

The  fact  is,  that  nowadays  short  maturities  are  in 
most  ways  to  be  preferred  to  long  term  issues.  Even 
among  straight  railroad  bonds,  it  is  much  better  to  buy 
at  par,  or  slightly  under,  a  good  4  per  cent  bond  running 
ten  years  or  less  than  one  running  fifty  or  one  hundred 
years.  Even  in  a  period  of  tight  money  there  is  little 
chance  of  a  good  bond  materially  depreciating  if  its  prin- 
cipal is  to  be  met  in  a  few  years,  while  a  fifty  year  bond 
might  depreciate  ten  points,  just  as  we  have  seen  them 
do  since  1902.  If  the  proper  selection  can  be  made  there 
is  little  more  attractive  than  issues  of  shorter  terms. 

Aside  from  regular  mortgage  bonds  which  happen  to 
mature  early,  there  are  two  classes  of  very  desirable 
short  term  investments.  One  of  these  is  the  straight 
short  term  note,  sometimes  secured  by  collateral  and 
sometimes  not,  and  the  other  the  equipment  trust  bond. 
The  latter  security  is  often  most  attractive.  An  equip- 
ment bond  is  always  secured  on  the  actual  equipment 
itself,  and  usually  matures  serially;  that  is,  a  certain  pro- 
portion of  the  principal  falls  due  every  year,  the  pay- 
ments usually  being  spread  over  ten  or  fifteen  years. 
Thus,  when  the  equipment  covered  has  worn  out  or  de- 
preciated to  an  extent  to  be  regarded  as  inefficient,  the 
bonds  secured  on  it  are  all  paid  off,  both  principal  and 
interest. 

I  list  below  a  number  of  short  term  notes  and  equip- 
ment issues,  which  it  seems  to  me  are  all  perfectly  secure, 
and  quite  desirable  as  short  term  investments  for  either 
institutions  or  individuals. 


Short  Term  Investments 


165 


Good  Short  Term  Notes. 

Some  of  the  notes  listed  below  have  .no  collateral  back 
of  them,  but  the  properties  are  all  substantial  earners 
and  in  all  cases  the  notes  are  protected  by  good  safety 
margins.  It  will  be  noted  that  none  extend  beyond  1918, 
and  in  all  cases  the  yield  is  very  substantial.  One  of 
the  advantages  in  investing  in  this  type  of  issue  is  that  a 
holder  can  usually  market  his  notes  without  loss  of 
principal,  and  even  in  the  few  cases  where  he  cannot  do 
this,  he  is  protected  by  the  very  short  maturity. 

Approx. 
Name —  Per  Cent          Due  yield 

American  Locomotive  Co 5  July  1915-17  5.00 

Baltimore  &  Ohio 4^  June  1913  4.70 

Bethlehem  Steel  Corp 6  Nov.  1914  5.55 

Brooklyn    Rapid    Transit 5  July  1918  5.60 

Ches.  &  Ohio   R.R 4^  June  1914  4.95 

Chicago  Elevated  Rys 5  July  1914  6.10 

Cin.,  Ham.  &  Day.  Ry 4  July  1913  4.85 

Denver  Gas  &  Elec 6  April  1914  6.00 

Empire  District  Elec.  Co 6  May  1914  5.80 

Erie  R.R 6  April  8  1914  5.75 

Erie  R.R 5  Oct.  1914  5.20 

General  Motors  Co 6  Oct.  1915  6.25 

Gen.  Rubber  Co 4^  July  1915  5.60 

Hudson  Companies 6  Feb.  1915  6.25 

Illinois  Central  R.R 4l/2  July  1914  4.65 

Miss.,  Kan.  &  Tex 5  May  1913  6.25 

N.  Y.  C.  Railroad  Co. 4^  Mar.  1914  .  4.75 

St.  L.  &  S.  F.  R.R.... 5  Mar.  19  1913  6.00 

St.  L.  &  S.  F.  R.R.  Co 5  June  1913  6.00 

Southern  Ry.  Co 5  Feb.  1913  4.65 

Westinghouse  Elec.  &  Mfg 6  Aug.  1913  5.05 

(The  prices  are  those  of  Oct.   15,   1912.) 


166 


How  to  Invest  Money  Wisely 


Good  Equipment  Issues. 

The  following  list  includes  only  a  few  of  the  standard 

equipment  issues  which  are  desirable  for  short  term  in- 
vestment. Nearly  all,  it  will  be  noted,  mature  serially 
during  the  next  five  or  six  years : 

Name—                                                       Maturity  Per  Cent 

Atlantic    Coast   Line 1912-1917  4 

Bait.  &  Ohio  car  trust 1913-1922  \y* 

Buff.,  Roch.  &  Pittsburg 1919-1927  4-4 '  $ 

Central  of  Georgia  Ry 1912-1917  4l/>-5 

Central  R.  R.  of  N.  J 1912-1917  4 

Chesapeake  &  Ohio 1912-1917  4 

Chicago  &  Alton 1912-1917  4-4J4-5 

Chicago  &  Eastern  Illinois 1912-1917  4^-a 

Chi.,  R.  I.  &  P.  Ry 1912-1917  4^-5 

Cin.,   Ham.   &   Dayton 1912-1919  4^-5 

Delaware  &  Hudson -1922  V/2 

Erie 1912-1917  4-4J/2-5 

Hocking  Valley    1912-1918  4-4 '/> 

Hudson  &  Manhattan 1912-1919  ."i 

Kan.  City,  Ft.  Scott  &  Mem 1912-191:,  4'/> 

Kansas  City  Southern 1912-1915  4}/> 

Lehigh  Valley  Railroad 1912-1916  4-4K- 

Missouri  Pacific   1912-1917  5 

Mobile  &  Ohio 1912-1916  1-6 

X.  Y.  Central  Lines 1912-1922  5 

Norfolk   &   Western 1912-1916  4 

Pennsylvania 1912-1917  3J^-4 

St.  Louis  &  San  Fran 1912-1917  4-4^-5 

Seaboard  Air   Line 1912-1917  4^-5 

Southern  Railway    1912-1921  2I/4-4-41/? 

Virginian  Railway   1912-1917  5 


XXI 

Investing  in  Convertible  Bonds 

WITHIN  the  past  decade  the  "convertible"  bond 
has  become  increasingly  popular  among  inves- 
tors of  all  classes.  Its  popularity  is  undoubt- 
edly largely  due  to  the  fact  that  it  is  an  ingenious 
combination  of  investment  and  speculation.  When  a  bond 
of  this  character  is  issued  by  a  corporation  of  strong  earn- 
ing power  and  the  issue  itself  enjoys  a  good  margin  of 
safety,  the  investor  is  justified  in  feeling  quite  secure  as 
to  his  interest  and  the  payment  of  his  principal.  It  is 
true  that  most  convertible  issues  are  either  debentures  or 
junior  mortgages,  but  in  all  cases  they  have  greater 
equity  back  of  them  than  have  the  stocks  into  which  they 
are  usually  convertible,  and  these  stocks  are  themselves 
usually  dividend  payers,  with  the  protection  of  a  sub- 
stantial earning*  power. 

For  we  find  that  but  few  convertible  bond  issues  have 
been  created  by  corporations  whose  stocks  are  not  paying 
dividends.  And  this  is  quite  natural.  The  only  reason 
why  the  railroad  or  other  corporation  issues  a  convertible 
security  is  because  it  is  apt  to  find  a  better  market,  and 
it  finds  a  better  market  because  people  who  seldom  if 
ever  buy  bonds,  but  confine  their  investments  chiefly  to 

(  167  ) 


168  How  to  Invest  Money  Wisely 

stocks,  will  buy  the  convertible  bond  to  get  the  benefit  of 
the  potential  possibilities  of  the  future.  Thus,  where  a 
corporation  under  ordinary  conditions  could  not  sell  a 
4  per  cent  mortgage  bond  for  more  than  90,  it  can  sell  a 
4  per  cent  bond  convertible  into  a  5  per  cent  or  6  per  cent 
dividend  paying  stock,  at  par  without  any  trouble. 

For  the  investor  who  does  not  care  to  purchase  stocks, 
but  wishes  to  confine  himself  exclusively  to  bonds,  the 
convertible  bond  issue  is  sometimes  the  ideal  thing  to 
buy.  Nowadays  there  are  in  existence  such  a  large 
number  of  convertible  issues,  that  a  pretty  comprehen- 
sive scheme  of  investment  distribution  can  be  carried  out 
within  the  limits  of  this  single  type  of  security.  Of 
course,  convertible  issues  frequently  sell  at  very  high 
prices  as  compared  to  what  the  bond  would  sell  at  as  a 
straight  mortgage,  and  there  are  times  when  it  would  be 
foolish  for  people  to  put  much  money  into  many  of 
these  issues.  At  the  same  time,  it  is  often  quite  desir- 
able to  pay  a  moderate  premium  for  a  convertible  bond  in 
order  to  secure  the  potential  interest  in  the  future  growth 
of  earnings  in  the  company.  Those  who,  a  few  years 
ago,  bought  Norfolk  &  Western  convertible  4s  at  92, 
have  fared  very  well.  At  that  time  the  stock  was  paying 
4  per  cent  dividends  and  selling  at  88,  but  now  6  per  cent 
is  paid  on  the  stock  and  it  sells  at  117.  Of  course,  the 
bondholder  has  had  full  opportunity  to  exchange  into 
the  stock  and  get  a  6  per  cent  return ;  but  even  if  he  still 
holds  his  bond,  he  has  a  market  for  it  which  follows 
the  stock,  and  will  continue  to  do  so  as  long  as  the  con- 
vertible clause  holds. 


Investing  in  Convertible  Bonds  169 

Convertible  bonds  have  been  issued  in  recent  years,  not 
only  by  the  railroads,  but  also  by  many  public  utility 
and  industrial  companies.  I  append  below  a  list  of  the 
most  important  issues,  with  a  brief  explanation  of  the 
terms,  in  each  case,  for  the  convertibility  of  the  issue. 

Albany  &  Susquehanna  Railroad  first  mortgage  con- 
vertible 3^2  s;  due  April  1,  1946.  Convertible  at  par  at 
any  time  prior  to  April  1,  1916,  into  stock  of  Delaware 
&  Hudson  Co.  at  200;  that  is,  5  shares  of  stock  ($500) 
par  for  each  $1,000  bond. 

American  Agricultural  Chemical  Co.  first  mortgage 
convertible  5s;  due  October  1,  1928.  Convertible  at 
any  time,  into  cumulative  6  per  cent  preferred  stock  at 
par;  that  is,  10  shares  of  stock  ($1,000  par)  for  each 
$1,000  bond. 

American  Telephone  &  Telegraph  Co.  convertible 
debenture  4s;  due  March  1,  1936.  Redeemable  on  March 
1,  1915,  or  on  any  interest  date  thereafter,  on  12  weeks' 
notice,  at  105  and  interest.  Convertible  until  March  1, 
1918,  at  par  into  stock  at  133.7374,  with  accrued  interest 
and  dividends  adjusted;  that  is,  a  $1,000  bond  would 
receive  the  equivalent  of  $747.70  in  par  value  of  stock 
(the  stock  would  have  to  sell  at  133.734  to  give  an  exact 
equivalent  of  one  bond). 

Atchison,  Topeka  &  Santa  Fe  Railway  convertible 
debenture  5s;  due  June  1,  1917.  Convertible  into  com- 
mon stock  at  par  at  any  time  prior  to  June  1,  1910. 


170  How  to   Invest   Money  Wisely 

Atchison,  Topeka  &  Santa  Fe  Railway  convertible 
debenture  4s  (old  issue) ;  due  June  1,  1955.  Convertible 
into  common  stock  at  par  at  any  time  prior  to  June  1, 
1918.  Redeemable  at  five  months'  notice  at  110  and 
interest. 

Atchison,  Topeka  &  Santa  Fe  Raihvay  convertible 
debenture  4s ;  dated  1909;  due  June  1,  1955.  Convertible 
into  common  stock  at  par  at  any  time  prior  to  June  1. 
1918,  but  not  thereafter. 

Atchison,  Topeka  &  Santa  Fe  Railway  convertible 
debenture  4s;  dated  1910;  due  June  1,  1960.  Convertible 
into  common  stock  at  par  from  June  1.  1913.  to  June  1. 
1923,  but  not  thereafter. 

Atlantic  Coast  Line  Railroad  convertible  debenture  4s ; 
due  November  1,  1939.  Redeemable  after  May  1,  1916, 
at  105,  and  convertible  into  common  stock  at  $135  per 
share  up  to  January  1,  1920;  that  is,  it  requires  $135  in 
par  value  of  bonds  to  receive  $100  in  par  value  of  stock. 

Brooklyn  Rapid  Transit  Co.  first  refunding  convertible 
4s;  due  July  1,  2002.  Redeemable  at  110  and  interest. 
Convertible  into  stock  at  par  prior  to  July  1,  1914,  unless 
the  bond  is  endorsed  with  the  words.  "Convertibility  of 
this  bond  is  waived  by  the  holder." 

Chesapeake  &  Ohio  Railway  convertible  4l/2s',  dated 
1910;  due  February  1,  1930.  Redeemable  after  1915  at 
102V*>.  Convertible  into  stock  at  par  between  May  1, 
1911,  and  February  1,  1920. 


Investing  in  Convertible  Bonds  171 

Chicago,  Milwaukee  &  St.  Paul  Railway  convertible 
debenture  4^s;  clue  June  1,  1932.  Convertible  into 
common  stock  from  June  1.  1917,  to  June  1,  1922,  at  the 
option  of  the  holders. 

Erie  Railroad  convertible  mortgage  Series  A  4s;  due 
April  1,  1953.  Convertible  at  any  time  prior  to  April 
15,  1912,  into  common  stock  at  50;  that  is,  for  each 
$1,000  bond,  $2,000  in  par  value  of  stock  will  be  given. 

Erie  Railroad  convertible  mortgage  Series  B  4s;  due 
April  1,  1953.  Convertible  at  any  time  prior  to  October 
1,  1917,  into  common  stock  at  60;  that  is,  for  each  $1,000 
bond,  $1,666.66  in  par  value  of  stock  will  be  given. 

International  Paper  Company  consol.  mortgage  con- 
vertible 5s;  due  January  1,  1935.  Convertible  into  pre- 
ferred stock  at  par  on  any  interest  date  prior  to  January 
1,  1917. 

New  York,  New  Haven  &  Hartford  Railroad  con- 
vertible debenture  3>^s;  due  January  1,  1956.  Convertible 
into  stock  at  150,  between  January  1,  1911,  and  January 
1,  1916;  that  is,  $300  in  par  value  of  bonds  is  convertible 
into  two  shares  of  stock. 

New  York,  New  Haven  &  Hartford  Railroad  con- 
vertible debenture  6s;  due  January  15,  1948.  Convertible 
into  stock  at  par  from  January  15,  1923,  to  January  15, 
1948. 

Norfolk  &  Western  Railway  convertible  debenture  4s 
of  1907;  due  June  1,  1932.  Redeemable  at  105  and  in- 


172  How  to  Invest  Money  Wisely 

terest  at  option  of  company.     Convertible  into  common 
stock  at  par  at  any  time  prior  to  June  1,  1917. 

Norfolk  &  Western  Raihvay  convertible  debenture  4s 
of  1912;  due  September  1,  1932.  Convertible  into 
common  stock  at  par  at  any  time  prior  to  September  1, 
1922.  Redeemable  at  105  after  the  latter  date. 


Pennsylvania  Railroad  convertible  debenture  3%s  ;  due 
October  1,  1915.  Convertible  into  stock  at  $75  (par 
value  $50)  per  share;  equivalent  to  150  as  quoted  on 
New  York  Stock  Exchange. 

Southern  Pacific  Company  convertible  debenture  4s; 
due  June  1,  1929.  Redeemable  at  option  of  the  com- 
pany on  and  after  March  1,  1914,  at  105  and  interest. 
Convertible  at  any  time  prior  to  June  1,  1919,  into 
common  stock  at  130;  that  is,  it  takes  $130  in  par  value 
of  bonds  to  receive  one  share  of  stock  of  the  par  value 
of  $100. 

Union  Pacific  Railroad  convertible  debenture  4s;  due 
July  1,  1927.  Redeemable  on  and  after  July  1,  1912, 
at  102J/2  and  interest.  Convertible  at  any  time  prior  to 
July  1,  1917,  into  common  stock  at  175;  that  is,  it  takes 
$175  in  par  value  of  bonds  to  secure  one  share  of  stock 
of  the  par  value  of  $100. 

In  this  list,  which  includes  only  the  most  important 
issues  of  convertibles,  we  have  railroads,  public  utilities 
and  industrials  represented.  An  investor  in  this  field, 
with  a  fair  amount  of  capital,  could  spread  his  risk 


Investing  in  Convertible  Bonds  1<:> 

throughout  the  entire  United  States,  just  as  he  might 
do  with  the  stocks  themselves,  and  would  have  an  interest 
in  the  future  growth  of  all  the  properties  represented. 
If,  for  example,  a  railroad  system  like  the  Southern 
Pacific  should,  during  the  next  ten  years,  largely  increase 
its  dividend,  and  consequently  the  value  of  its  stock,  he 
would  share  in  such  growth  through  the  appreciation  in 
the  value  of  his  bond.  On  the  other  hand,  should  the 
road  experience  a  severe  setback  and  cut  its  dividend, 
the  bonds  would  still  be  good  and  sell  at  a  price  which 
reflected  the  general  credit  of  the  company. 


ALPHABETICAL   INDEX 


PAGES 

Adams  Express  Co.  coll.  4s,  due  1948 100 

Albany  &  Susquehanna  guaranteed  stock 140 

Atlanta  &  Charlotte  Air  Line  stock 141 

American   Agricultural  Chem.  preferred  stock 148 

American  Agricultural  Chem.  5s  of  1928 101 

American  Beet  Sugar  preferred  stock 148 

American  Car  &  Foundry  preferred  stock 149 

American  Cities  Co.  preferred  stock 157 

American  Cotton  Oil  5s  of  1931 101 

American  Gas  &  Electric  preferred  stock 158 

American  Light  &  Traction  preferred  stock 158 

American  Telephone  &  Telegraph  coll.  4s  of  1929 ill 

American  Smelting  &  Refining  preferred  stock 147 

American  Sugar  Refining  preferred  stock 149 

American  Writing  Paper  5s  of  1919 101 

Application  of  Sound  Principles 43 

Applying  Investment  Principles 33 

Armour  &  Co.  Real  Estate  4l/2s  of  1939 101 

Atchison  Railway  Light  &  Power  first  5s Ill 

Atchispn,  Topeka  &  Santa  Fe  preferred  stock 131 

Atlantic  City  Electric  Co.  5s  of  1938 Ill 

Baltimore  &  Ohio  preferred  stock 132 

Beech  Creek  guaranteed  stock 140 

Bethlehem  Steel  Co.  5s  of  1926 102 

Burlington  Railway  &  Light  Co.  5s  of  1932 Ill 

Butte  Electric  &  Power  Co.  preferred  stock 158 

Carolina  Power  &  Light  first  5s  of  1938 Ill 

Central  Leather  Co.  5s  of  1925 102 

Chicago,  Milwaukee  &  St.   Paul  preferred  stock 134 

Chicago  &  North  Western  preferred  stock 133 

Chicago,  St.  Paul,  Minneapolis  &  Omaha  preferred  stock. . .  133 

Cincinnati  Gas  Transportation  5s  of  1933 112 

Classifying  Investments  34 

Cleveland  &  Pittsburg  R.  R.  guaranteed  stock 141 

Colorado  Fuel  &  Iron  Co.  general  5s  of  1940 102 

Columbia  Railway  Gas  &  Electric  5s  of  1936 112 

Concord  &  M9ntreal  R.  R.  guaranteed  stock 141 

Connecticut  River  Railroad  guaranteed  stock 141 

Consumers  Power  Co.  5s  of  1934 103 

Convertible  Bonds  as  Investments 167 

(174) 


Alphabetical  Index  175 


PAGES 

Danville,  Urbana  &  Champlain  Railroad  5s  of  1923 113 

Distribution  and  Profit  Combined 75 

Diversifying  Investments   9 

Eastern  Oregon  Light  &  Power  5s  of  1929 113 

East  St.  Louis  &  Suburban  coll.  5s  of  1932 113 

E.  I.  du  Pont  de  Nemours  Powder  Co.  4^s  of  1936 103 

E.  I.  du  Pont  de  Nemours  Powder  Co.  preferred  stock 150 

Erie  &  Pittsburg  guaranteed  stock 142 

Erie  Railroad  first  and  second  preferred  stocks 134 

Equipment  Trusts  as  Investments 166 

Examples 50,  51,  53,  70,  77,  82,  83,  84,  127 

Factor  of  Maturity  in  Bonds .  49 

Fort  Smith  Light  &  Traction  5s  of  1936 114 

Fort  Worth  Power  &  Light  5s  of  1931 114 

Georgia  Railroad  &  Banking  Co.  guaranteed  stock 142 

Georgia  Railway  &  Electric  preferred  stock 159 

General  Chemical  Co.  preferred  stock 150 

Government  Issues  as  Investments 88,  89 

Groups  of  Investments  34,  39 

Guaranteed  Railroad  Stocks  as  Investments 139 

Helena  Light  &  Railway  5s  of  1925 114 

Illinois  Traction  Co.  preferred  stock 159 

Indianapolis,  Columbus  &  Eastern  Traction  5s  of  1926....  114 

Industrial  Bonds  as  Investments 88,  90,  92,  99 

Industrial  Preferred  Stocks  as  Investments 145 

Industrial  Stocks   88,  90,  92 

International  Harvester  preferred  stock 151 

International  Nickel  Co.  5s  of  1932 103 

International  Paper  Co.  5s  of  1935 103 

International  Steam  Pump  Co.  5s  of  1929 104 

Investment  Cycles   67 

Investment  of  Moderate  Sums 81 

Investing  for  Profit   57 

Ironwood  &  Bessemer  Railway  &  Light  5s  of  1936 115 

Jackson  (Miss.)  Light  &  Traction  5s  of  1932 115 

Jacksonville  (Fla.)  Traction  5s  of  1931 115 

Johnstown  Passenger  Street  Railway  4s  of  1931 115 

Kansas  City  (Mo.)  Gas  Co.  5s  of  1922 116 

Lackawanna  Steel  &  Iron  conv.  5s  of  1923 104 

Laclede  Gas  Co.  preferred  stock 1 59 


176  Alphabetical  Index 

PAGES 

Lake  Shore  &  Michigan  Southern  3Mjs,  Action  of 13 

Larger  Sums,  Plans  for  Investment  of. '. . .  '.  .87,  88,  92 

Little  Miami  Railroad  guaranteed  stock 142 

Maturity,  Factor  of, .  in  Bonds 49 

Michigan  United  Railways  5s  of  1936. 116 

Milwaukee  Electric  Ry.  &  Light  preferred  stock.... ;.  160 

Milwaukee  Gas  Light  Co.  4s  of  1927 116 

Minneapolis  General  Electric  preferred  stock 160 

Mistaken  Investment  Methods 17 

Madison  River  Power  first  5s  of  1935 >:,.. ....  116 

Moderate  Sums,  Plans  for  Investment  of 81,  82~  83,  84 

Morris  &  Co.  first  4V2s  of  1939 104 

Morris  &  Essex  guaranteed  stock. 143 

National  Biscuit  preferred  stock 151 

National  Enameling  &  Stamping  ref.  5s  of  1929 105 

National  Tube  Co.  first  5s  of  1952 105 

New  Orleans  Railway  &  Light  4%s  of  1935 117 

New  York  City  4s,  Action  of 13 

New  York  &  Richmond  Gas  5s  of  1921 117 

Norfolk  &  Portsmouth  Traction  5s  of  1936 117 

North  Carolina  Public  Service  5s  of  1934 118 

Northern  Illinois  Light  &  Traction  5s  of  1923 118 

Northern  Indiana  Gas  &  Electric  5s  of  1929 117 

Northern  Ohio  Traction  &  Light  5s  of  1933 119 

Northern  Texas  Traction  5s  of  1933 118 

Oklahoma  Gas  &  Electric  Co.  5s  of  1929 119 

Old  Colony  Railroad  guaranteed  stock 143 

Otis  Elevator  conv.  5s  of  1920 105 

Ottumwa  Railway  &  Light  5s  of  1924 119 

Pacific  Power  &  Light  ref.  5s  of  1930 120 

Pensacola  Electric  Co.  5s  of  1931 120 

Peoria  Gas  &  Electric  Co.  5s  of  1923 121 

Pittsburg,  Cin.,  Chic.  &  St.  Louis  preferred  stock !:;:> 

Pittsburg,  Fort  Wayne  &  Chicago  guaranteed  stock ....  144 

Pittsburg,  McKeesport  &  Yough.  guaranteed  stock 144 

Plans  for  Investment  of  Larger  Sums 87 

Plans  for  Investment  of  Moderate  Sums 81,  82,  83,  84 

Portland  Electric  Co.  5s  of  1926 1 ::  I 

Potential  Possibilities,  Taking  Advantage  of 59 

Primary  Factor  Affecting  Prices L'7 

Profit,  Distribution  and  Combined 75 

Proper  Principles  for  Diversifying  Investments 2:> 


Alphabetical  Index  177 

PACES 

Public  Utility  'Bonds 55,  90,  109 

Public  Utility  Securities  as  a  Class 37 

Public  Utility  Stocks  as  Investments 157 

Railroad  Bonds  53,  88,  89 

Railroad  Preferred  Stocks  as  Investments 88,  89,  129 

Railway  Steel  Spring  preferred  stock 152 

Railway  Steel  Spring  bonds 106 

Representative  Railroad  common  stocks 62 

Republic  Iron  &  Steel  5s  of  1940 106 

Rights   63 

Reading  first  and  second  preferred 135 

Rock  Island  preferred  136 

Seaboard  Air  Line  preferred  stock 136 

Seattle  Electric  Co.  preferred  stock 161 

Selection   of   Investments 11 

Selecting  Public  Utility  Bonds 109 

Short  Term  Notes  163,  165 

Southern  Power  Co.  5s  of  1930 122 

Special  Benefits  Received  163 

Springfield  (Mo.)  Railways  &  Light  5s  of  1926 122 

Superior  Water,  Light  &  Power  5s  of  1931 122 

Taking  Advantage  of  Potential  Possibilities 59 

Tri-City  Railway  &  Light  5s  of  1930. . : 123 

Trumbull  Public  Service  Corp.  6s  of  1920 123 

Twin-States  Gas  &  Electric  4^s  of  1926 123 

Typical  Industrial  Bonds 99 

Union  Bag  &  Paper  Co.  first  5s  of  1930 107 

Union  Electric  Light  &  Power  5s  of  1933 124 

United  Electric  Light  &  Power  4%s  of  1929 124 

United  States  Realty  &  Imp.  5s  of  1924 107 

United  States  Steel  preferred  stock 152 

United  States  Steel  sinking  fund  5s  of  1963.. 107 

Unlisted  Industrial  preferred  stocks 155 

Unsound  Theories 21 

Utah  Light  &  Power  4s  of  1930 124 

Virginia-Carolina  Chemical  first  5s  of  1923 108 

Virginia-Carolina  Chemical  preferred  stock 152 

Virginia  Railway  &  Power  5s  of  1934 125 

Victor  Fuel  Co.  first  5s  of  1953 108 

Western  Ohio  Railways  Co.  5s  of  1921 125 

York  Railways  Co.  5s  of  1937 125 


IN VESTM  ENT 
PROTECTION 

The  Investor,  Banker,  Bank  Officer 
f  K  and  Trustee  ^alizes  every  day  the 

01  l^xper  importance  of  expert  study  of  the 
primary  factors  which  affect  secu- 
rity values  in  a  far  more  important  degree  than  he 
who  simply  takes  a  ''flyer  in  stocks."  The  latter 
class  generally  get  little  for  their  pains,  but  the  real 
investor  deserves  something  more  tangible  than 
"bitter  experience ;"  the  Bank  Officer  or  Trustee 
finds  it  his  duty  to  keep  himself  properly  informed 
—if  for  no  other  reason,  as  a  protection  to  those 
who  have  trusted  to  his  judgment. 

It  is  a  well-demonstrated  fact  that  more  money 
is  lost  through  "investment"  than  in  the  ordinary 
fields  of  what  is  known  as  "speculation."  And  the 
bulk  of  this  investment  loss  is  incurred  because  in- 
vestors fail  to  properly  inform  themselves  of  the 
real  basic  factors  back  of  their  investments.  A  few 
years  ago  the  bonds  and  preferred  stock  of  the 
Iiiiffalo  &  Susquehanna  Railroad  were  sold  widely 
among  banking  institutions  and  investors  in  all  parts 
of  the  Eastern  States;  the  Allis-Chalmers  first 
mortgage  5s  and  preferred  stock  were  offered  as 
high-grade  investments  by  prominent  houses;  the 
Pere  Marquette,  Chicago  Great  Western,  Western 
Pacific  and  Denver  &  Rio  Grande  bond  issues  were 
aggressively  advertised  as  -in»ng  securities:  the 


\Yabash  refunding  4s  were  everywhere  distributed 
as  bonds  of  great  prospective  value.  To-day  many 
of  these  issues  are  either  in  default  or  have  under- 
gone heavy  depreciation.  And  yet,  an  impartial 
analysis  of  the  factors  back  of  all  of  them  long  ago 
disclosed  the  fact  that  they  were  "speculations"  and 
not  investments. 

On  the  other  hand,  many  bonds  and  dividend- 
paying  stocks  which  sold  at  relatively  low  prices  a 
short  time  ago  have  risen  in  value  and  investment 
strength  to  a  marked  degree.  For  instance,  Can- 
adian Pacific  stock  has  risen  in  the  last  five  years 
to  a  level  which  the  ordinary  investor  would  not 
have  dreamed  of  in  1906.  This  has  not  been  due 
to  speculative  causes  merely,  for  an  analysis  of  the 
Canadian  Pacific  finances  and  property  five  years 
ago  would  have  clearly  demonstrated  that  the  asset 
value  of  the  stock  would  vastly  increase  in  the 
future  years.  A  study  of  the  property  assets  back 
of  the  United  States  Steel  Corporation  sinking  fund 
5s  in  1904,  when  they  were  selling  at  80,  would 
have  clearly  shown  that  they  were  intrinsically 
worth  at  least  their  par  value.  An  unbiased  analy- 
sis of  the  values  back  of  the  Standard  Oil  and 
American  Tobacco  issues  at  the  time  of  dissolution, 
clearly  indicated  that  the  earning  capacity  of  the 
companies  was  far  greater  than  was  then  reflected 
in  the  prices  of  the  stocks.  And  so  on,  ad  infinitum. 

But  further  than  this,  a  careful  analysis  of  pri- 
mary factors  is  also  of  the  greatest  importance  to 
those  investors  who  confine  their  purchases  entirely 


to  what  are  known  as  "high-grade,  seasoned  invest- 
ments." In  1901  Lake  Shore  &  Michigan  Southern 
first  3^28  were  in  this  class  and  sold  at  110;  they 
are  still  in  this  class,  but  sell  below  88 ;  St.  Paul  first 
4s  sold  at  115  in  1902;  to-day  they  sell  below  par; 
Chicago  &  Northwestern  3^s  sold  at  I06y2  in 
1902;  they  are  now  quoted  at  84;  even  high-grade 
municipal  issues  are  nowadays  ranging  from  ten  to 
fifteen  per  cent,  below  the  prices  of  a  decade  ago. 
Thus  the  investor  who  has  confined  his  selections 
in  the  last  decade  to  the  highest  grade  bonds  is  in 
many  cases  worse  off  than  he  who  has  bought  issues 
of  far  lower  grade. 

Instances  similar  to  the  above  could  be  cited  al- 
most indefinitely,  but  enough  has  been  said  to  show 
the  vital  importance  to  all,  whether  as  Investor, 
Banker,  Trustee  or  Bank  Officer,  of  going  below  the 
surface  in  studying  values  as  well  as  studying  the 
general  factors  which  bring  about  changes  in  the 
general  price  level  of  investments  from  year  to  year. 

In  fact,  there  are  just  two  broad  general  fields 
of  study  which  are  absolutely  indispensable  for  the 
investor.  First,  the  study  of  the  general  funda- 
mentals which  bring  about  periods  of  inflation  and 
depression ;  affect  the  prevailing  interest  rate  of  the 
civilized  world ;  cause  financial  or  industrial  panics ; 
raise  or  lower  the  level  of  commodity  prices,  etc. 
Whether  we  are  in  a  period  of  decline  or  improve- 
ment in  business  are  questions  which  we  should  al- 
ways attempt  to  determine,  but  when  these  basic 
questions  are  answered  to  the  investor's  satisfaction. 


at  best  only  half  the  problem  has  been  solved. 
When  most  bankers  and  investors  bought  Buffalo 
&  Susquehanna  securities  we  were  clearly  in  a 
period  of  prosperity,  but  this  fact  did  not  prevent 
them  from  losing  their  money. 

This  brings  us  to  the  field  of  study  which  is,  in 
all  specific  cases,  by  far  the  most  important.  It  is 
the  question  of  selection ;  and  in  the  problem  of 
selection  really  lies  the  key  to  investment  success. 
For  while  every  bond  or  stock  responds  in  a  general 
way  to  the  broad  trend  of  business  and  public 
credit,  it  also  responds  most  directly  to  specific  in- 
fluences which  affect  it  alone.  And  for  this  reason 
"analyzing"  individual  securities  is  usually  much 
more  important  to  the  average  investor  than  mere 
"forecasting."  We  may  "forecast"  the  recurring 
cycles  of  prosperity  and  depression  in  this  country 
with  fair  accuracy  but  if  we  do  not  analyze  our  in- 
vestment holdings  and  test  each  individual  security, 
we  frequently  run  a  great  risk  of  seeing  at  least  a 
part  of  our  principal  swept  away. 


p  -  While  our  analytical  organization 

is  the  largest  of  its  kind,  and  our 

Supervision      facilities    for    gathering    facts    far 

superior  to  that  of  any  other  statistical  organization 
in  the  world,  Mr.  Moody  gives  personal  supervision 
to  the  wants  of  every  client  and  does  not  delegate 
this  important  work  to  others. 


The  Service  embraces  the   follow- 

Features         ing  features: 

1.  Weekly  Review  of  Financial  Conditions,  be- 
ing a  careful  analysis  of  the  events  of  the  week 
and  of  the  financial,  industrial  or  political  factors 
which  influence  the  security  markets; 

2.  A  Special  Analysis    (issued  each  week)   of 
some  particular  property  or  some  specific  financial 
subject  (send  for  booklet  for  partial  list  of  subjects 
recently  covered)  ; 

3.  Weekly  Bond  and  Investment  Letter,  which 
analyzes  recent  bond  offerings,  suggests  plans  for 
proper   diversification   of    investments,    points    out 
strong  and  weak  points  in  different  issues,  etc. 

4.  An  Investment  Valuation  Record,  issued  once 
a  month,  showing  the  investment  yield  of  the  lead- 
ing issues,  margin  of  safety  in  earnings,  etc. 

5.  Monthly    Analysis    of    Business    Conditions 
picturing  in  statistical  form  the  progress  of  trade 
and  industry,  with  full  interpretation  from  the  in- 
vestor's standpoint ; 

6.  A  Personal  Correspondence  System,  whereby 
all  clients  have  the  privilege  of  making  specific  in- 
quiries once  a  week  on  matters  which  are  of  par- 
ticular interest  to  them; 

7.  A    Security    Record    System,    whereby    the 
client  may,  if  he  chooses,  file  a  confidential  list  of 
his  holdings  for  the  purpose  of  receiving  regular 
advice    regarding    the    list,    with    suggestions    for 
change,  etc.    These  lists  are  cross-indexed  and  filed 
for  constant  reference. 


—  The  Complete  Investment  Service 

j  is   furnished  for  a  fee  of  $100  per 

year  which  includes  " Moody 's  Analyses  of  Invest- 
ments," issued  annually  in  two  volumes.  This 
publication  rates  all  the  bond  and  stock  issues  in 
the  country  on  the  same  plan  that  the  mercantile 
agencies  rate  the  credit  of  merchants.  It  is  an 
invaluable  reference  book  for  any  investor.  With- 
out the  annual  the  price  of  the  Service  is  $75  per 
year.  The  Service  is  also  supplied  to  temporary 
subscribers  at  $  1 0  per  month,  without  the  book.  The 
annuals  alone  sell  for  $25  delivered. 

As  a  demonstration  of  the  scope  and  value  of  the 
work  we  have  been  doing  for  investors,  we  cite  a 
single  instance.  A  year  ago  a  client  submitted  to 
us  a  list  of  bond  and  stock  holdings  amounting  to 
about  $200,000  on  which  his  annual  return  was 
about  $7,500  or  less  than  4%.  The  bulk  of  the 
money  was  concentrated  in  one  or  two  classes  of 
securities,  and  many  issues,  while  so-called  "high- 
grade"  had  been  steadily  declining.  We  took  his 
list  in  hand,  suggested  exchange  of  at  least  a  third 
of  the  holdings,  and  worked  out  a  plan  for  scientific 
distribution.  To-day  this  total  list  is  yielding 
$10,000  per  annum;  the  principal  is  distributed  over 
a  broad  area,  the  former  risks  are  eliminated,  while 
the  close  superintendence  of  the  list  by  our  office 
has  relieved  the  investor  of  constant  worry  and 
trouble. 

MOODY'S  INVESTMENT  SERVICE 

35  Nassau  Street  New  York 


"  The  One  Absolutely  Indispensable  Book" 

MOODY'S  ANALYSES  OF 
INVESTMENTS 

PART    I.     STEAM  RAILROADS 

PART  II.     PUBLIC  UTILITIES  AND  INDUSTRIALS 

ISSUED   ANNUALLY 


Scope  of  They   ANALYSE  the   annual   re- 

ports  of  all  the  corporations  of  the 
country  by  a  method  which  enables 
the  user  of  the  book  to  ascertain  at  a  glance  the 
TRUE  VALUE  of  all  of  the  Bond  and  Stock 
issues.  Bankers  and  Brokers  frequently  hire  ex- 
perts at  fees  ranging  all  the  way  from  $500  to 
$1,000  each  to  analyze  particular  corporations  for 
them.  This  book  furnishes  complete  analyses  of  all 
the  important  corporations  in  the  United  States,  the 
figures  being  all  brought  down  to  the  end  of  the 
latest  fiscal  year,  and  the  subject  treated  in  every 
case  in  an  absolutely  impartial  and  unbiased 
manner. 


"The  book  is  original    and   unique  and   supplies  a  want 
not  heretofore  covered  by  financial  publications." 

Commercial  &  Financial  Chronicle,   New    York. 


This  book  is  of  practical  value  not  merely  to  one 
class  in  the  investment  field,  but  to  all.  It  is  not 
simply  a  Bond  Broker's  or  Stock  Broker's  text 
book,  but  embraces  features  of  unusual  usefulness 
to  Railroad  Officials,  Investors,  Financial  Institu- 
tions and  many  others.  It  is  the  one  absolutely 
indispensable  book  for  the  Investment  Banker ;  the 
Bond  Dealer;  the  Stock  Broker;  Banks  and  Trust 
Companies  ;  Savings  Banks ;  Insurance  Companies ; 
the  Individual  Investor;  the  Bond  Salesman;  Rail- 
road Officials. 

Physical  In  tlle  Ra^roacl  Edition  the  phys- 

"  ical   characteristics   are   first   dealt 

with.  These  embrace  a  description 
of  the  location  and  Territory,  a  table  showing  the 
diversity  of  the  Freight  Tonnage  for  ten  years,  and 
a  further  table,  containing  a  complete  TEN-YEAR 
RECORD  of  Mileage,  Equipment,  Passenger  and 
Freight  Density,  Average  Revenue  Train  Load, 
Train-mile  Earnings,  and  Passenger  and  Freight 
Rates.  These  items  are  then  averaged  for  the  ten- 
year  period,  and  a  COMPARISON  made  with  like 
averages  of  four  other  systems  operating  in  similar 
territory.  Comments  are  made  by  the  writer  on 
the  exhibits  shown  in  each  case,  thus  furnishing  a 
proper  and  simple  interpretation  of  the  figures  for 
the  use  of  BANKERS,  BROKERS  and  INVEST- 
ORS generally. 


The  foregoing  method  is  applied  to  every  railroad 
system  analyzed,  and  forms  a  complete  ten-year 
detailed  view  of  the  changes  in  the  property  in  a 
physical  and  operating  sense. 

Income  ^  Ten-year  record  is  presented  of 

the  INCOME  ACCOUNT  of  each 
road  reduced  to  a  mileage  basb. 
This  table  covers  the  Gross  Revenue,  Maintenance 
Expenditures,  Transportation  and  Traffic  Expenses, 
Net  Operating  Earnings,  Total  Net  Income,  Fixed 
Charges,  Margin  of  Safety  over  charges,  Surplus 
Available  for  Dividends,  amounts  paid  in  Dividends, 
amounts  spent  in  Improvements,  etc.  These  items 
covering  the  ten-year  periods  are  then  averaged, 
and  the  averages  compared  in  each  case  with*  those 
of  four  other  similar  systems.  The  entire  exhibit 
is  commented  on  by  the  writer,  its  strong  and  weak 
points  being  brought  out  clearly  in  each  case. 

This  analysis  of  income  accounts  forms  a  com- 
plete ten-year  view  of  the  changes  of  each  property 
in  its  earning  and  dividend-paying  power.  It  gives 
just  the  information  which  the  STOCKHOLDER 
or  the  BONDHOLDER  needs,  but  usually  finds  so 
difficult  to  obtain. 

Capital  ^    Ten-year    record    is    next    pre- 

1  sented  of  the  HAL  ANTE  SHEETS 

Factors  rajiroa(j  sstem,  reduced  to 


a   mileage   basis.      This    exhibit    shows    the    Stocks 


and  Bonds  Outstanding,  the  amount  of  Rental 
Obligations  (capitalized  at  5%),  amounts  of  Se- 
curities or  Investments  owned,  the  Net  Capitali- 
zation of  each  road,  and  the  Percentage  of  Net 
Income  on  Net  Capital.  A  Dividend  Record  is  also 
presented  in  this  Table,  and  all  figures  cover  the 
full  period  of  ten  years.  Averages  of  the  Ten- 
year  figures  are  shown,  and  comparisons  made  with 
four  other  properties,  as  in  the  case  of  the  other 
tables.  Finally,  analytical  comments  are  made  by 
the  author  on  the  entire  exhibit,  pointing  out  the 
strong  or  weak  features  on  the  financial  side  of  the 
property. 

Bond  ^  complete  record  of  every  rail- 

.  road  bond  issue  of  each  system  is 

Ratings  furnished,  the  different  issues  be- 

ing listed  according  to  their  priority  and  general 
security.  A  Rating,  based  on  the  relative  strength 
of  each  issue  is  then  given.  These  ratings  are 
presented  on  a  plan  similar  to  that  employed  by 
mercantile  agencies  in  rating  the  credit  of  mer- 
chants. Thus,  a  very  high-grade  bond,  such  as 
Lake  Shore  3^s,  is  rated  Aaa;  one  of  lower  grade, 
like  Baltimore  &  Ohio  Southwestern  3^s,  is  rated 
Aa ;  Erie  consol.  4s.  are  rated  A ;  Missouri  Pacific 
refunding  5s,  Ba ;  while  much  lower  grade  issues, 
such  as  Erie  convertibles,  get  a  rating  of  B,  and 
much  more  speculative  bonds,  with  doubtful  futures, 
are  rated,  Ca,  C,  D,  etc.  Information  is  given  in 
each  case  for  demonstrating  how  the  rating  is  ar- 


rived  at;  the  nature  of  the  lien  is  shown,  amounts 
outstanding  per  mile  are  given  and  it  is  stated  in 
each  case  in  what  State,  if  any,  the  issue  is  legal  for 
savings  banks. 

This  method  of  listing  and  rating  is  applied  to 
every  railroad  bond  issue,  over  1,500  bond  issues 
being  rated  in  the  book. 

Stock  ^  complete  record  of  every  stock 

issue  of  each  system  is  also  fur- 
nished, including  all  the  guaranteed 
stocks.  The  different  issues  are  listed  according 
to  their  priority  in  claim  on  income,  interest  in 
equity,  etc.  A  rating  similar  to  that  applied  to  the 
bond  issues,  is  given  each  stock.  Thus,  all  good 
guaranteed  stocks  are  rated  Aaa  or  Aa,  preferred 
issues  with  a  strong  record  are  also  rated  high, 
some  common  stocks  get  the  highest  rating,  while 
the  position  of  the  more  speculative  issues  is  shown 
by  ratings  running  down  from  A  to  D  or  E.  De- 
faulted bond  issues,  and  stocks  awaiting  the  results 
of  reorganization,  are  of  course  in  most  cases  rated 
very  low.  As  in  the  bond  record,  information  is 
given  in  connection  with  each  stock,  showing  the 
terms  of  the  lease,  if  any,  or  the  basis  of  its  position 
in  earnings  or  equity. 

In  the  back  of  the  volume  a  ten- 

n    .          year  record  of  prices  of  stocks  and 

Pnce      bonds    is    presented,    showing    the 

highest   and   lowest   quotations   of 

each  issue  in  every  year  of  the  decade.     No  com- 


plete  record  of  this  nature  has  ever  before  been 
presented,  and  its  extraordinary  value  to  Bankers, 
Brokers  and  Investors  need  not  be  emphasized  here. 

The  volume  covering  Public  Utility 
r'UDllC  ancj  incjustrial  Securities  is  of  the 

.H  same  broad  scope  and  character  as 

Industrial         that    covering    Steam    Railroads. 

While  there  are  some  reference 
books  in  existence  which  undertake  to  describe  cor- 
porations in  these  fields,  there  are  none  aside  from 
"Moody's  Analyses  of  Investments"  which  under- 
take to  analyze  and  rate  the  various  security  issues. 
Our  book,  however,  in  addition  to  furnishing  full 
statistical  records  of  these  companies  with  the 
greatest  possible  completeness,  analyzes  the  operat- 
ing results,  classifies  the  stocks  and  bonds,  and  gives 
each  security  a  Rating,  just  as  is  done  in  the  volume 
on  Steam  Railroads. 

Each  part  is  sold  separately,  at  $15.00  each,  or 
combination  orders  are  accepted  for  the  full  year's 
subscription  to  the  two  parts  for  $25,  payable  on 
delivery.  Part  I,  covering  the  Steam  Railroads,  is 
issued  in  January  cf  each  year,  and  Part  II,  cov- 
ering Public  Utilities  and  Industrials,  in  April  of 
each  year. 


Published  by  the 

MOODY'S  INVESTMENT  SERVICE 

35  Nassau  Street,  New  York  City. 
TELEPHONE,  1299  CORTLANDT. 


HOW    TO    ANALYZE 
RAILROAD    REPORTS 

By  JOHN  MOODY 


This  attractive  book,  which  has  recently  been 
issued,  covers  in  a  complete  and  popular  way,  the 
entire  subject  of  railroad  operation  and  finance.  It 
is  intended  primarily  for  the  Investor  who  holds 
railroad  stocks  or  bonds,  and  supplies  a  long  felt 
want  for  everyone  who  is  in  any  way  interested  in 
railroad  securities. 

Every  stockholder  receives  his  annual  report 
from  the  railroad  in  which  he  has  invested  his 
money,  but  very  few  stockholders  have  the  time  or 
the  technical  knowledge  to  clearly  analyze  the 
meaning  of  the  figures  presented.  This  little  book 
explains  the  principles  whereby  every  statement  and 
figure  in  the  report  can  be  clearly  understood,  and 
the  significance  properly  judged. 

The  following  table  of  contents  indicates  the 
character  of  the  book,  and  the  scope  of  the  subject. 


Table  of  Contents 

PART  ONE 


INTRODUCTION  : 


I.  Preliminary  Statement. 

II.  The  Railroad:  Its  Normal  State. 

III.  First  Steps  in  the  Analysis. 

IV.  The  Location  of  the  Railroad. 

V.  The  Management  of  the  Railroad. 

VI.  The  Results  of  the  Decade. 

VII.  Relative  Values— The  "Railroad-Mile." 

PART  TWO 
THE  PHYSICAL  FACTORS  : 

VIII.  Physical  Factors  in  the  Railroad. 

IX.  Average  Miles  Operated. 

X.  Equipment. 

XL  Proportion  of  Freight  to  all  Traffic. 

XII.  Passenger  and  Freight  Density. 

XIII.  Average  Freight  Train  Load. 

XIV.  Train-mile  Earniners. 

XV.     Passenger  and  Freight  Rates. 

PART  THREE 
THE  INCOME  FACTORS  : 

XVI.  Earnings  and  Their  Distribution. 

XVII.  The  General  Income  Account. 

XVIII.  The  Operating  Revenues. 

XIX.  The  Maintenance  Accounts. 

XX.  Transportation    and    Other    Operating    Ex- 
penses. 

XXI.  Outside  Operations. 

XXII.  Net  Operating  Revenues. 


XXIII.  "Other  Income"  and  Total  Net  Income. 

XXIV.  Fixed  Charges  and  the  Margin  of  Safety. 
XXV.     Disposal  of  Surplus. 

PART  FOUR 
THE  CAPITALIZATION  FACTORS: 

XXVI.     Assets  and  Liabilities  of  the  Railroad. 
XXVII.    The  Balance  Sheet. 
XXVIII.    The  Capital  Assets. 
XXIX.     The  Capital  Liabilities. 
XXX.     Capitalization  of  Rentals. 
XXXI.     Stocks  and  Bonds  Per  Mile. 
XXXII.     Net  Capitalization. 
XXXIII.     Net  Income  on  Net  Capital. 

Appendix:  Outline  of  Uniform  Accounting 
Requirements  for  Operations  of  Steam 
Railroads,  as  prescribed  by  the  Interstate 
Commerce  Commission. 


Price,  $2.00  per  copy.  Carriage  lOc.  The  book 
is  handsomely  bound  in  blue  flexible  leather,  con- 
tains 228  pages,  and  is  of  a  convenient  size  which 
can  be  carried  in  the  pocket. 


MOODY'S  INVESTMENT  SERVICE 
\ assau  Street  New  York  City 

Teh-plum.-    1:.".n 


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